With larger traditional IRA account balances and changing tax laws, Roth IRA conversions have emerged as a compelling strategy in retirement planning, offering a range of benefits and opportunities. Converting your tax-deferred retirement plans to a Roth IRA can be a strategic move, particularly for individuals seeking tax diversification, potential long-term growth, and flexibility in retirement income.
Let’s take a look at why this option may merit serious consideration, who stands to benefit most, and the optimal timing and methods for completing a Roth IRA conversion.
What Are the Advantages of a Roth IRA?
The Roth IRA stands out for its unique tax treatment. With a Roth IRA, you pay taxes upfront on your contributions based on your current income level and tax bracket. Those funds then grow tax-free, and qualified withdrawals in retirement are tax-free.1 Tax-free growth in retirement can create substantial wealth for savvy investors with large Roth accounts.
Roth IRAs also offer more flexibility for retirement withdrawals compared to traditional accounts. Because contributions have already been taxed, account holders can withdraw their contributions at any time without penalty (once they reach the age of 59 ½ and are past the five-year holding window), providing a source of tax-free income in emergencies or unforeseen expenses. And unlike traditional retirement accounts, Roth IRAs are not subject to required minimum distributions (RMDs) during the account holder’s lifetime. This means retirees can leave their Roth IRA untouched for as long as they wish, allowing for continued tax-free growth and potentially leaving an income tax-free inheritance for heirs.
Who Can Benefit Most from a Roth IRA Conversion?
Always talk to your financial advisor before making any big changes to your retirement plan. However, here are a few times you may want to consider this strategy.
- You’re expecting to be in a higher tax bracket in retirement. It might be wise to pay taxes at your current rate rather than at a potentially higher one post-retirement. This is especially relevant if you anticipate increased earnings in the future or if you have substantial savings in retirement accounts. Converting some or all of your traditional IRA funds to a Roth IRA now could be advantageous to even out your tax rates over your lifetime.
- You’re experiencing irregular income streams or lower-than-usual earnings this year. This could be a good time to convert some funds to a Roth IRA, especially if you are in the years between retirement and the start of RMDs or if you have incurred a net operating loss from nonpassive income, such as owning a business. Converting to a Roth during these lower-income periods may result in a relatively low tax impact.
- Your annual earnings disqualify you from contributing to a Roth IRA. The 2026 annual income caps to contribute to a Roth IRA are $168,000 for single tax filers and $252,000 for those married filing jointly.1 However, anyone can convert all or part of their traditional IRA contribution to a Roth IRA, regardless of income. This is commonly known as a “backdoor” Roth IRA.
- Your portfolio is lacking tax diversification. If most of your assets are in tax-deferred accounts, consider converting some of those funds to a Roth IRA. This strategy can help decrease RMDs thereby decreasing adjusted gross income, which may help to cut down on taxes in retirement. A larger Roth account can also offer flexibility in managing your tax bracket and can allow for a more tailored approach to tax planning and distributions during retirement.
- You’re planning to leave a larger estate to your heirs. Converting savings from a 401(k) or traditional IRA to a Roth IRA can help your savings grow without being affected by required minimum distributions (RMDs)—potentially allowing the Roth IRA to grow in later years and leaving more for your beneficiaries. Additionally, heirs may be in peak earning years when inheriting IRA assets, which can result in high taxes when forced to withdraw those assets during the required ten-year period. Generally, beneficiaries will be able to withdraw the money from Roth assets without paying income tax during that ten-year period, provided they adhere to IRS distribution rules. This can add up to millions of dollars of increased wealth for beneficiaries.
When It Doesn’t Make Sense to Convert
Roth IRA conversions aren’t for everyone. Here are a few situations where you might want to consult with your advisor or forego this particular strategy.
- You’re near retirement or have already retired. In this case, you may not have enough time to recover from the taxes incurred after your conversion for this strategy to make sense. Also, if you’re already receiving Social Security or Medicare, the conversion could elevate your taxable income—potentially causing your Social Security to be taxed and your Medicare costs to increase.
- You can’t afford to pay the conversion taxes this year. A Roth IRA conversion has the potential to be more advantageous when you can pay the conversion taxes with cash on hand. If you are considering selling assets in a taxable account to cover these costs, an option is to do so from accounts without taxable gains or those with a higher cost basis.
- You intend to donate a significant portion of your retirement savings to charity. If this is the case, you should instead consider setting up a qualified charitable distribution (QCD), which would satisfy your required minimum distribution (RMD) requirements without creating taxable income.
How to Convert Your Retirement Savings to a Roth IRA
Timing and method can be crucial when converting to a Roth IRA. To help optimize benefits and minimize tax implications, consider these timing options:
- During Low-Income Years – Consider converting during years when your income and tax rate are relatively low. This approach can mitigate the tax impact of the conversion and potentially enable you to “fill up” lower tax brackets with converted funds.
- Before Tax Rates Increase – If you anticipate tax rates will increase in the future, converting sooner rather than later could be advantageous. Locking in today’s tax rates may shield your retirement savings from potentially higher taxes in the future.
You don’t have to convert your entire traditional retirement account all at once. Opting for partial conversions over multiple years allows you to spread the tax liability out and manage your income tax bracket strategically.
When transferring funds from a traditional retirement account to a Roth IRA, you can opt for a direct rollover to avoid potential tax penalties. A direct rollover allows the funds moving directly from one custodian to another, bypassing you entirely helping to provide a smooth and tax-efficient transfer.
Talk to Your Financial Advisor to See if a Roth IRA Conversion is Right for You
The benefits of tax-free withdrawals, exemption from RMDs, and flexibility in managing tax liabilities make Roth conversions an appealing option for many proactive retirement savers. It can be crucial to consult with a financial advisor or tax professional to evaluate your specific situation and help ensure that this strategy aligns with your overall financial goals and tax strategy. With careful planning and execution, converting to a Roth IRA can unlock potential tax advantages and enhance your retirement outlook.
FAQs
What is a Roth IRA conversion?
A Roth IRA conversion is the process of moving funds from a pre-tax retirement account such as a traditional IRA or 401(k) into a Roth IRA. Taxes are paid up front during the transition, and then the investment can grow and be withdrawn income tax-free.
What are the benefits of a Roth IRA conversion?
By converting funds to a Roth IRA, you can pay taxes now rather than when you withdraw funds, withdraw contributions at any time without penalty (once you turn 59 ½ and are past the five-year holding window), avoid required minimum distributions (RMDs), and potentially leave an income tax-free inheritance for heirs.
How are Roth IRA conversions taxed?
With a Roth conversion, you pay taxes on the funds transferred to the Roth IRA based on your current tax bracket. Those funds can then grow tax-free and be withdrawn tax-free.
What is a backdoor Roth conversion?
A backdoor Roth conversion is a strategy for people to take advantage of the benefits of a Roth IRA even if their annual earnings ($168,000 for single tax filers and $252,000 for those married filing jointly1) disqualify them from contributing directly to it. Individuals can fund a traditional IRA and then transfer those funds from a tax-deferred retirement plan to a Roth IRA.
How do I avoid potential tax penalties with a Roth IRA conversion?
A direct rollover can help you avoid potential tax penalties when transferring funds from a traditional retirement account to a Roth IRA. This allows the funds to move directly from one custodian to another, helping to ensure a smooth and tax-efficient transfer.
1 IRS Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs), 15 January 2026, https://www.irs.gov/pub/irs-pdf/p590a.pdf
Debra Taylor is not registered with Cetera Wealth Services LLC. Any information provided by this individual is provided entirely on behalf of CWM, LLC and is in no way related to Cetera Wealth Services LLC or its registered representatives.
Converting from a traditional IRA to a Roth IRA is a taxable event.
A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. Roth IRAs are not free of potential estate taxes.
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