You’ve probably heard the term “Roth conversion” before. But if you’re not sure what it actually means (or whether it applies to you), you’re not alone. It’s one of those strategies that sounds more complicated than it is.
What is a Roth conversion?
A Roth conversion is when you move money from a traditional IRA into a Roth IRA. That’s basically it. The catch is that the amount you convert is counted as taxable income in the year you make the conversion. You pay the taxes now, but from that point on, the money can grow tax-free and withdrawals are tax-free in retirement, as long as you are at least age 59 1⁄2 and have had a Roth IRA for at least five years.
With a traditional IRA, you get a tax break when you put money in, but you pay taxes when you take it out. A Roth flips that. You pay now, and you’re done.
So why would someone do this?
Timing. It almost always comes down to timing.
If your income is lower right now than it will be later. Maybe you’re between jobs, in an early retirement gap year, or just in a quieter earning season. You might be in a lower tax bracket than you expect to be in the future. That gap is the opportunity. Moving money into a Roth now means paying taxes at today’s lower rate instead of a higher one later.
It also matters because of Required Minimum Distributions. Once you turn 73, the IRS requires you to take money out of your traditional IRA every year, whether you need it or not. Those withdrawals are taxable and can push you into a higher bracket. A Roth conversion before that age can reduce how much is sitting in your traditional IRA, which means smaller RMDs, and more control over your tax picture in retirement.
Is this right for everyone?
No, and that’s important to say. A Roth conversion isn’t a universal win. If you’re already in a high tax bracket, converting a large amount could cost more than it saves. There’s also the question of whether you have cash available to pay the tax bill without dipping into the retirement account itself.
The strategy works best when the numbers line up and figuring out whether they do requires looking at your full financial picture.
If you’re within ten years of retirement and haven’t thought about this yet, it’s worth a conversation.
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