If you have meaningful balances in a Traditional IRA, a 401(k), or another pre-tax retirement account, you’ve probably heard about Roth conversions. This post explains what a conversion is, what it can and can’t do, and the questions to work through before deciding whether one fits your situation.
What a Roth conversion is
A Roth conversion moves money from a pre-tax retirement account, such as a Traditional IRA or pre-tax 401(k), into a Roth IRA. The pre-tax portion of the amount you convert is added to your taxable income for that year and taxed at ordinary income rates (IRS Publication 590-A). Once the money is in the Roth IRA, qualified withdrawals are generally tax-free, and the original owner never has to take required minimum distributions (RMDs) from it (IRS Publication 590-B).
Three rules shape the rest of the decision. There is no income limit on conversions, so high earners who can’t contribute to a Roth IRA directly can still convert. There is no annual dollar cap. And a conversion made in 2018 or later can’t be recharacterized, so once it’s done, it can’t be reversed (IRS, Retirement Plans FAQs Regarding IRAs).
Why people consider them
The usual reason is a gap between your tax rate now and your expected rate later. If your marginal bracket (the rate on your last dollar of income) is lower today than you expect it to be in retirement, paying tax on part of your pre-tax balance now may cost less than paying tax on RMDs later at a higher rate. You accept a known tax bill today in place of an uncertain, possibly larger one later.
Conversions can serve other goals too. Because a Roth IRA has no lifetime RMDs for the original owner, converting gives you more control over which accounts you draw from in retirement. Most non-spouse heirs must empty an inherited Roth IRA within 10 years under current law, but those distributions can be tax-free once the account meets its five-year holding requirement. A Roth balance also adds a tax-free bucket alongside pre-tax and taxable accounts, so in any given year you can draw from whichever one suits that year’s tax picture.
The law behind the rate comparison shifted in 2025. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, made the current federal income tax brackets permanent; they had been scheduled to rise after 2025 (The Tax Adviser). For most households, the comparison now turns on their own income path, such as the drop when a paycheck stops and the rise when Social Security and RMDs begin, more than on a scheduled change in the law. Congress and the states can still change rates at any time.
When conversions tend to get a closer look
Conversions get the closest look in years when taxable income is lower than usual. For many households, that window opens after the last paycheck and before Social Security and RMDs add to the return. Under the SECURE 2.0 Act, RMDs from most pre-tax accounts begin at age 73 for people born from 1951 through 1959 and at age 75 for those born in 1960 or later (IRS RMD FAQs). The years between retirement and RMD age are often the lowest-bracket years a household will see.
A few other situations prompt the same analysis: a year of unusually low income from a sabbatical, a business loss, or a job change; a year with large itemized deductions that can absorb extra income; or the year before a known income event, such as a deferred compensation payout or an inherited IRA distribution, that will use up bracket space later.
What to weigh on the cost side
The tax on a conversion is due for the year you convert, and it may call for quarterly estimated payments to avoid an underpayment penalty. Several second-order effects can raise the true cost.
Medicare surcharges (IRMAA)
Higher modified adjusted gross income (MAGI) can trigger Income-Related Monthly Adjustment Amounts, or IRMAA, which are surcharges on Medicare Part B and Part D premiums two years later (Social Security Administration). A conversion in 2026 affects 2028 premiums.
The senior deduction
For 2025 through 2028, people 65 and older can claim an additional deduction of up to $6,000 each, or $12,000 for a married couple who both qualify. The deduction shrinks once MAGI passes $75,000 for single filers or $150,000 for joint filers (IRS Publication 6142). Conversion income counts toward that MAGI.
Social Security taxation
Conversion income can make more of your Social Security benefits taxable (IRS Publication 915).
ACA premium tax credits
This one carries more weight in 2026 than in recent years. The enhanced premium tax credits enacted in 2021 expired on December 31, 2025, and the cutoff at 400% of the federal poverty level is back (Congressional Research Service). For 2026 marketplace coverage, a household whose MAGI exceeds about $62,600 for a single filer or $84,600 for a two-person household loses the entire credit, not a portion of it. A conversion that pushes MAGI one dollar over the line can erase the year’s subsidy.
Paying the tax from the IRA
If you use IRA money to pay the conversion tax, less ends up in the Roth. If you’re under 59½, the amount withheld for taxes counts as a distribution and can bring a 10% early withdrawal penalty.
Five-year rules
Each conversion starts its own five-year clock for penalty-free withdrawal of the converted amount if you’re under 59½. A separate five-year clock governs tax-free withdrawal of earnings.
The pro-rata rule
If you hold after-tax money (called basis) alongside pre-tax money in your Traditional, SEP, or SIMPLE IRAs, the IRS treats any conversion as a proportional share of each (Internal Revenue Code §408(d)(2); IRS Form 8606). A conversion you meant to be partly tax-free may turn out mostly taxable. The rule aggregates IRAs only. Balances in a 401(k), 403(b), or similar employer plan stay out of the calculation, which gives some households with after-tax IRA basis room to plan.
Each of these can change the answer, which is why a conversion decision rests on more than this year’s federal bracket.
State taxes
Where you live changes the math. As of 2026, Washington does not have an individual income tax (Washington Department of Revenue), so a conversion does not create a Washington income tax bill today. That may change in 2028. In March 2026, Washington enacted a 9.9% tax on Washington taxable income above $1 million, effective January 1, 2028, with the first returns due in 2029 (ESSB 6346 Final Bill Report). The law faces a constitutional challenge (Courthouse News Service), so its future is not settled. If it takes effect, most conversions will fall well below the threshold, but a large conversion in 2028 or later could add state tax on income above $1 million.
Oregon’s top rate for 2026 is 9.9%, which applies to taxable income above $125,000 for single filers and $250,000 for joint filers (Oregon Department of Revenue, Publication OR-ESTIMATE), so a large conversion can carry a sizable Oregon tax bill on top of the federal cost. Arizona’s flat 2.5% rate, in place since tax year 2023, is much lower (Arizona Department of Revenue). If you are planning conversions over several years and a move between states is likely, the timing of the move can change the after-tax result substantially.
State tax treatment depends on where you live, your filing situation, and laws that change, so confirm the current rules with your state’s revenue department or your tax professional before converting.
Questions to work through
- What is your projected marginal bracket this year, and what will it look like once RMDs begin?
- Do you have money outside retirement accounts to pay the conversion tax?
- Are you within two years of starting Medicare, where IRMAA thresholds come into play?
- Are you 65 or older, or will you be before 2028, with income near the senior deduction phaseout?
- Are you buying ACA marketplace coverage, where the 400% cliff is back?
- Do you have after-tax basis in a Traditional, SEP, or SIMPLE IRA that would trigger the pro-rata rule?
- Who would inherit the account, and what do you want it to do for them?
A Roth conversion does the most good as one piece of a multi-year tax projection that maps brackets, IRMAA thresholds, and other income events across the years before and after the conversion.
This content is for educational purposes only and does not constitute personalized investment, tax, or legal advice. Third Stanza Group LLC is a registered investment adviser in the states of Arizona, Oregon, and Washington. Registration does not imply a certain level of skill or training. Please consult a qualified professional regarding your specific situation.