Key Takeaways
- A Roth conversion moves money from a traditional IRA or 401(k) into a Roth. You pay ordinary income tax on the amount you move, in the year you move it.
- In exchange, that money grows tax free, comes out tax free, and never faces a required minimum distribution during your lifetime.
- The old reason to hurry is gone. The 2017 tax brackets were scheduled to expire after 2025, but the law signed on July 4, 2025 made them permanent.1 Converting now is about your bracket being low, not about rates jumping.
- The tax bill is the catch. A conversion can raise the taxable share of your Social Security, shrink the new senior deduction, and lift your Medicare premiums two years later.
- This works best in measured amounts across several years, not one big move.
A Roth conversion means moving money out of a traditional IRA, paying income tax on it this year, and letting it grow tax free from then on. Done in the right years and the right amounts, it can lower what you pay the IRS over your lifetime. Done carelessly, it can cost more than it saves.
Think of it like paying for a gym membership up front instead of monthly. Same gym. The question is which bill you’d rather have, and when.
What is a Roth conversion, exactly?
A conversion moves money from a tax-deferred account into a Roth account, and you settle the tax bill in the year you do it. Nothing leaves your control. You’re changing the tax treatment, not spending the money.
In a traditional IRA you took a deduction when you contributed, and you owe ordinary income tax when the money comes out. A Roth is the mirror image. No deduction going in, nothing owed coming out.2
Convert, and three things change. The money grows tax free. Qualified withdrawals come out tax free. And Roth IRAs carry no required minimum distributions while you’re alive,3 so the IRS never forces you to take income you don’t need.
We walked through the mechanics on The Fiscal Physical Podcast in episode 8, “Roth Conversions Explained: How They Work and the Tax Cost.”
Why would anyone volunteer to pay tax early?
Because of one bet: your tax rate today is lower than the rate that money would face later. If that’s true, paying now wins. If it isn’t, you just prepaid a bill at a bad price.
In my book Your Fiscal Physical, I describe tax brackets as buckets. Your income fills the first bucket, then spills into the next, and only the spillover gets taxed at the higher rate. A conversion is you choosing to fill a bucket on purpose, in a year when the cheap buckets still have room.
The classic window opens the day you stop working and closes when Social Security and required withdrawals begin. Your paycheck is gone. Your RMDs haven’t started. For a lot of retirees, those are the lowest-income years of their adult life, and the only ones where they fully control the number on the return.
There’s a second benefit that compounds quietly. Every dollar you convert is a dollar that won’t sit in your traditional IRA generating a taxable required withdrawal later. You’re shrinking a future problem while you solve a present one.
Has the case for converting changed in 2026?
Yes, and this is the part most articles haven’t caught up on. The urgency changed, but the strategy didn’t.
For years the pitch was simple: the 2017 tax cuts expire after 2025, so convert before rates snap back. That deadline is gone. The One Big Beautiful Bill Act, signed July 4, 2025, made the seven brackets permanent, from 10% up to 37%.1 Nothing is scheduled to revert.
So the reason to convert is no longer the calendar. It’s you.
The question is whether your own bracket is temporarily low right now compared with where it lands once Social Security and RMDs stack on top. For a couple with a large traditional IRA, that gap can be wide, and it’s the whole case for converting. Permanent brackets actually make this easier to plan, because you’re comparing today’s rate against a known future rate instead of guessing at a sunset.
One honest caveat. Permanent means “until Congress changes it,” not “forever.” Future law can differ from current law, and anyone who tells you they know what rates look like in 2040 is guessing.
When does a Roth conversion make sense?
The pattern usually fits when several of these are true at once.
- You’re in a temporary low-income year. Early retirement before Social Security, a gap year, or a year your business income dropped.
- You expect a higher bracket later. Usually because a large traditional balance is going to force big withdrawals once you hit your required age, which is 73 or 75 depending on the year you were born.3
- You can pay the tax from outside the IRA. This matters more than people expect. Pull extra from the IRA just to cover the tax and you’ve shrunk the amount that lands in the Roth, which is the whole point.
- You have runway. Tax-free growth needs years to outrun the up-front cost.
- You’re thinking about heirs. Most non-spouse beneficiaries have to empty an inherited IRA within ten years either way. The difference is the tax. Roth withdrawals come out tax free, while a traditional IRA hands your children a taxable bill during what are often their peak earning years.8
When is a Roth conversion a bad idea?
Just as important, and discussed far less often.
Skip it in a year your income is already high. You’d be paying at a top rate now to avoid a lower rate later, which is the strategy running backward. Skip it if you’d have to raid the IRA to pay the tax. And skip it if you’ll truly be in a lower bracket later, because then deferring was the right answer all along.
If you’re on Medicare or close to it, slow down and do the math first. Here’s why.
What are the hidden traps in a Roth conversion?
A conversion adds to your income for the year, and that number drives several other calculations you may not be watching. Four to know.
Your tax bracket. A large conversion can push part of itself into the next bracket. Convert enough to fill a bucket, then stop.
Social Security taxation. Conversion income raises your provisional income, which decides how much of your benefit is taxable.4 More conversion can mean more of your Social Security gets taxed.
Medicare premiums. Medicare charges higher earners a surcharge called IRMAA on top of Part B and Part D. For 2026 it starts above $109,000 of modified adjusted gross income for a single filer and $218,000 for a couple filing jointly.5 It works like a cliff, not a slope. One dollar over the line triggers the whole tier. Medicare also looks back two years, so a conversion you do in 2026 shows up on your 2028 premium.6
The senior deduction. This one is new, and almost nobody is watching it.
How can a conversion shrink the new senior deduction?
If you’re 65 or older, you may qualify for a deduction of up to $6,000 per person for tax years 2025 through 2028. It phases out as your income rises, and conversion income counts.7
Each qualifying person’s $6,000 shrinks by 6 cents for every dollar of modified adjusted gross income above $75,000 on a single return or $150,000 on a joint return. It’s fully gone at $175,000 and $250,000.7 For a married couple where both spouses are 65 or older, that’s up to $12,000 on the line.
So a conversion can cost you twice. Once on the converted dollars, and again on the deduction those dollars push out the door.
A worked example
Here’s a hypothetical couple. Illustrative figures, not a client, meant to show the mechanics.
Bill and Beth are both 67 and retired. Their income for the year runs $150,000 before any conversion, and both qualify for the senior deduction, so they’re sitting on the full $12,000. They decide to convert $50,000 from Bill’s traditional IRA.
Their income goes to $200,000. That’s $50,000 above the $150,000 threshold, so each spouse’s $6,000 deduction drops by 6% of $50,000, or $3,000. Each is left with $3,000. Their combined senior deduction falls from $12,000 to $6,000.
So what did the conversion actually cost them? The $50,000 they converted? A bit more?
Their taxable income rose by $56,000, not $50,000. If those dollars land in the 22% bracket, the tax comes to $12,320 instead of $11,000. That’s an effective rate of 24.6% on a conversion they thought was a 22% decision.
The fix isn’t to skip the conversion. It’s to size it. Convert $30,000 instead of $50,000 and far less of the deduction walks out the door. This is exactly the kind of thing worth modeling before December, not discovering in April.
Why are Roth conversions usually a multi-year strategy?
Because every trap above is a threshold, and thresholds reward patience.
A single large conversion spikes your income into one year, where it can clear a bracket, a Medicare tier, and a deduction phase-out all at once. The same total spread across six or eight years can slide under those lines every time.
In my book I put it this way: rather than converting a whole $1 million at once, convert a little each year and stay inside your current bracket. Same destination. Much smaller toll along the way.
This takes annual attention, because the right number changes with your income every year. That’s the trade-off. A conversion plan isn’t a one-time decision you make and forget. It’s more like a yearly checkup, where you look at the numbers, adjust, and move on.
My own view, for what it’s worth. Don’t let the tax tail wag the investment dog. What you do want is to make the decision with the math in front of you. A conversion large enough to trigger a Medicare surcharge can still model out to a lower lifetime tax bill. It can also go the other way, where the surcharge costs more than the conversion saves. It depends on your balances, your rates now and later, your time horizon, and what the law does next. It has to be modeled, not assumed.
Frequently Asked Questions
What is a Roth conversion?
Moving money from a tax-deferred account like a traditional IRA into a Roth IRA. You pay ordinary income tax on the converted amount that year. In return the money grows and later comes out tax free, with no required minimum distributions during your lifetime.
Do I pay tax on a Roth conversion?
Yes. The amount you convert is ordinary income in the year you convert it. Where possible, pay that tax from savings outside the IRA so the full converted amount keeps growing in the Roth.
When is the best time to do a Roth conversion?
Often in a low-income year, especially after you stop working but before Social Security and required minimum distributions begin. Your bracket is usually at its lowest in that window, and you have the most control over the number.
Can a Roth conversion raise my Medicare premiums?
It can. A conversion raises your modified adjusted gross income, and if that crosses an IRMAA threshold ($109,000 single or $218,000 joint at 2026 levels), your Part B and Part D premiums can rise about two years later.5 IRMAA is a cliff, so one dollar over the line triggers the full tier for that year.
Did the 2025 tax law change whether I should convert?
It changed the reason, not the answer. The seven brackets are now permanent rather than expiring after 2025,1 so there’s no rate deadline to beat. The case for converting now rests on your own bracket being lower today than it will be once RMDs and Social Security stack up.
Should I convert my whole IRA at once?
Usually not. One large conversion can clear a tax bracket, a Medicare threshold, and the senior deduction phase-out in a single year. Smaller conversions spread across several years typically keep you under those lines.
Sources
- Tax Foundation, FAQ: The One Big Beautiful Bill Act Tax Changes. ↩
- Internal Revenue Service, Roth IRAs. ↩
- Internal Revenue Service, Retirement topics: Required minimum distributions (RMDs). ↩
- Social Security Administration, Income Taxes and Your Social Security Benefit. ↩
- Centers for Medicare & Medicaid Services, 2026 Medicare Parts A & B Premiums and Deductibles, November 14, 2025. ↩
- Medicare.gov, 2026 Medicare Costs (IRMAA is based on the tax return from two years prior). ↩
- Internal Revenue Service, Check your eligibility for the new enhanced deduction for seniors. ↩
- Internal Revenue Service, Retirement plan and IRA required minimum distributions FAQs (ten-year rule for most non-spouse beneficiaries). ↩
Educational content only. Not personalized investment, tax, or legal advice. Any example shown is hypothetical and does not represent an actual client, account, or result.
Ready to see how this plays out for you?
The math above is general education. Your version depends on your balances, your bracket today, your Social Security timing, and how many years you have before RMDs begin.
Grab the free eBook. The Retirement Tax Bomb covers how tax-deferred accounts build a future tax bill and the levers that defuse it.
Run your own numbers. Try our Roth vs traditional IRA calculator and tax bracket calculator.
Or just talk it through. Book a QuickFit call. Short, no pressure, just to see whether we’re a fit.
More on how we approach tax planning, our Roth conversion episodes on The Fiscal Physical Podcast, and our post on whether Roth conversions are still worth it in 2026.
Alchemy Wealth Management is an investment adviser registered with the State of Nevada. This article is for educational purposes only. It is not personalized investment, tax, or legal advice, and it is not a recommendation to buy, sell, or hold any security or to pursue any particular strategy. Bill and Beth are hypothetical and illustrative. They are not clients, the figures are not drawn from any actual account, and the example is not a projection or estimate of investment performance. The 22% bracket in the example is assumed for illustration; your own bracket depends on your total income and filing status. Nothing here is a guarantee or assurance of any tax savings, premium reduction, or other result. Tax rules, Medicare premiums, IRMAA thresholds, and deduction amounts change, and future law may differ materially from current law. Figures cited are 2026 amounts and were current as of publication. Alchemy Wealth Management does not provide tax or legal advice. Please consult a qualified tax or legal professional about your own situation.
