When Do Roth Conversions Actually Make Sense in Retirement?
Key Takeaways:
A conversion only pays off when today's rate beats tomorrow's. It only makes sense if the alternative is paying more tax later, on the same dollars, at a higher rate.
The best conversion windows are narrow and specific. The gap years before RMDs, a market downturn, and low-income years each create a temporary discount most retirees miss.
The real cost includes more than the bracket. IRMAA surcharges, the five-year rule, and California's tax treatment can all change whether converting makes sense.
While Roth conversions are widely touted as a standard retirement strategy, they deliver value only when your current marginal tax rate is lower than the rate you or your beneficiaries will face in the future. Without that rate differential, converting simply means prepaying tax obligations early.
This guide breaks down the core financial logic, highlights the most advantageous timing windows, examines key friction points, and identifies when to avoid a conversion.
The Short Answer: Convert When Today's Rate Beats Tomorrow's
Voluntarily prepaying taxes often draws pushback, but the real choice is never between paying tax and avoiding it entirely. Rather, it comes down to paying taxes today at a known rate versus paying later at an unpredictable rate, especially once Social Security benefits and mandatory withdrawals begin increasing your taxable baseline.
Instead of focusing solely on reducing this year’s tax liability, the true objective is minimizing the cumulative tax burden for your household and estate over the long run. As part of a comprehensive, tax-efficient retirement income strategy, a Roth conversion serves as one targeted tool. This analysis focuses strictly on the tax implications, not portfolio architecture or the order of asset withdrawals.
What a Roth Conversion Actually Costs, and What It Buys
A conversion moves pre-tax IRA or 401(k) dollars into a Roth IRA. The converted amount counts as ordinary income that year, taxed at 2026 rates running from 10% up to 37% above $640,600 single or $768,700 joint.1 In exchange, the money grows tax-free, with no lifetime RMDs once inside the Roth. First, keep in mind that the decision is permanent. The tax law changes in 2018 eliminated the ability to recharacterize or undo a conversion.
The Four Windows When a Conversion Makes the Most Sense
The Gap Years: After Your Last Paycheck, Before RMDs and Social Security
This is the classic window. Earned income has stopped, and RMDs haven't started, generally at 73 or 75 depending on birth year, so taxable income hits a lifetime low.2 The years before 65 are often richest, since IRMAA doesn't apply until Medicare does. It's tempting to just enjoy the low bracket, but unconverted balances keep compounding, and a large pre-tax account can push a surviving spouse into a much higher bracket later.
Low-Income Years at Any Age
The same logic applies to any one-off low-income year like a sabbatical, an early retirement before a pension starts, or a business sale year structured to keep ordinary income low.
Market Downturns
Converting a depressed balance means paying tax on a smaller number for the same shares, and the recovery happens tax-free inside the Roth. Our piece on sequence-of-returns risk covers the mechanics of down markets. A downturn can also be a genuine opportunity, not just a paper loss.
Filling a Target Bracket, Year After Year
Rather than one large conversion, many households convert systematically, just enough each year to use the current bracket without spilling into the next. The right ceiling is often not the bracket edge but an IRMAA threshold sitting just below it, which is exactly what the next section covers.
The Hidden Costs That Change the Math
Medicare IRMAA and the Two-Year Lookback
The actual cost of converting extends well beyond the tax bracket, beginning with its impact on Medicare premiums. A conversion raises your modified adjusted gross income (MAGI), and premiums two years later are set from that number; for 2026, the surcharge applies above $109,000 single or $218,000 joint.3 Income-Related Monthly Adjustment Amount (IRMAA) is a cliff, not a slope, and one dollar over triggers the full surcharge tier, which is the most common surprise for high-net-worth converters.
The 5-Year Rule on Converted Dollars
Each conversion starts its own five-year clock, running from January 1 of the conversion year, before converted principal can come out penalty-free if you're under 59½. Earnings follow a separate five-year rule.4 Past 59½, only the earnings clock still matters.
Where the Conversion Tax Gets Paid From
Paying the tax from outside savings preserves the full converted amount. Pulling it from the IRA shrinks the benefit and can trigger penalties before 59½. Which accounts to tap, and in what order, is a separate question that we cover in this blog.
State Taxes: The California Factor
California taxes conversions as ordinary state income with no preferential treatment, which matters for Marin and East Bay households. Those realistically planning a move to a lower-tax state may prefer to defer conversions until after relocating.
When a Roth Conversion Does Not Make Sense
A conversion isn't automatically right. It tends to work against you when you genuinely expect a lower bracket later, when charitable intent could route the same dollars through a qualified charitable distribution instead, when heirs are likely in lower brackets than you, when you'd need the funds within five years, or when there's no outside cash to cover the tax. These are scenarios to weigh, not verdicts.
The Legacy Case: Conversions as an Estate Planning Tool
Under the SECURE Act, most non-spouse heirs must generally empty an inherited pre-tax IRA within ten years, often during their peak earning years.5 For family-owned enterprises taking a multi-generational approach, the most powerful reason to convert is estate planning. Under SECURE Act rules, non-spouse beneficiaries generally have just ten years to fully liquidate an inherited traditional IRA, frequently colliding with their highest earning years. By converting early, parents absorb the tax burden at their current lower rate and pass a tax-free legacy to their heirs.
Common Roth Conversion Mistakes
A few mistakes show up repeatedly, including converting everything in one year and spiking into a higher bracket, ignoring the IRMAA lookback past 63, attempting to convert an RMD before satisfying it (which isn't allowed), forgetting quarterly estimated taxes, and converting without a written multi-year plan. A broader look at retirement income mistakes is coming in a future article.
Roth Conversion FAQs
1. When should I start doing Roth conversions?
Once earned income drops and before RMDs and Social Security begin adding back to taxable income. That window varies by household but is usually the cheapest stretch to convert.
2. Is a Roth conversion worth it after retirement, or is it too late?
Rarely too late. Converting before RMDs begin, or in smaller amounts alongside them, can still reduce future required withdrawals and their taxes.
3. Do Roth conversions count toward Medicare IRMAA income?
Yes. The converted amount adds to MAGI for that year, which can raise Medicare premiums two years later if it crosses a threshold.
4. What is the 5-year rule for Roth conversions?
Each conversion has its own five-year clock, starting January 1 of the conversion year, before principal comes out penalty-free under 59½. A separate rule applies to earnings.
5. Can I convert my RMD to a Roth IRA?
No. The RMD must be withdrawn first each year. Only amounts beyond that can be converted.2
6. How is a Roth conversion different from a backdoor Roth contribution?
A conversion moves existing pre-tax dollars into a Roth. A backdoor Roth is a nondeductible contribution followed by a conversion, generally used by high earners above the direct Roth income limits.
How We Help Clients Decide
There's no universal answer to when a conversion makes sense, as it depends on your brackets, timeline, and estate goals, evaluated together.
As a fee-only fiduciary, we model conversion decisions within a full tax and income plan, including multi-year bracket projections,
IRMAA thresholds, and estate goals. If you'd like help deciding whether, and when, a conversion fits your plan, schedule an intro call.
This article is for informational purposes only and is not personalized tax, legal, or investment advice. All examples are hypothetical. Tax rules and thresholds change; consult a qualified tax professional before making conversion decisions.
Resources
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.
