Should You Do a Roth Conversion? Here’s How to Think About It

Roth conversions are one of those financial strategies that sound great in theory, but in practice, they can get pretty complex. At a basic level, a Roth conversion means moving money from a pre-tax retirement account (like a traditional IRA or 401(k)) into a Roth account, where future withdrawals are tax-free. The catch? You have to pay income taxes on the converted amount now.

Why would anyone choose to pay more taxes today? Because in the right situation, it can save you far more later. Roth accounts grow tax-free, and withdrawals in retirement are also tax-free. That can be a major advantage if you’re currently in a lower tax bracket, expect to be in a  higher tax bracket down the road, or want to ease the future tax burden on your heirs. Timing is key: if your income is unusually low in a given year—for example, during early retirement before Social Security or required distributions begin—a Roth conversion could let you lock in today’s lower tax rate and avoid higher taxes later.

One important consideration is the cost of conversion. If you convert $100,000 from a pre-tax account while in the 22% federal bracket and 5% state bracket, you’ll owe about $27,000 in taxes. If you pay that tax bill from the conversion itself, only $73,000 ends up in your Roth. If you can pay the taxes with other funds, the full $100,000 goes in. It’s a big upfront cost either way. On the flip side, if you expect to be in a higher tax bracket in retirement, once Social Security, side income, and Required Minimum Distributions (RMDs) kick in, a conversion now could help minimize future headaches and give you more control over your taxable income later.

There’s also the impact on things like capital gains rates, Medicare premiums (IRMAA), and even the taxability of Social Security. And let’s not forget surprises—like unexpected income or a late bonus—that could bump you into a higher bracket mid-year and wipe out the conversion’s benefits. It's why Roth conversions aren’t “set it and forget it.” They’re better when planned carefully and strategically.

Bottom line? Roth conversions can be a smart move—but only if they fit your broader financial picture. That’s why Frank runs the math across all your real numbers in real time, weighing tax brackets, income sources, and life events to help you decide if and when it makes sense. Because with taxes, timing really is everything.