Educational information, not individual financial advice.
Key Takeaways
A Roth conversion moves money from a Traditional IRA or 401(k) into a Roth IRA. The amount converted is treated as ordinary income in the conversion year — you pay tax on the conversion. After conversion, the money grows tax-free and qualified withdrawals are tax-free forever.
There is no income limit for conversions (unlike direct Roth IRA contributions). Anyone can convert any amount. The question is whether you should.
Five reasons:
Lower tax rates now than later. If you're in a 12% bracket now and will be in a 22% bracket later (common for retirees who haven't yet started Social Security and RMDs), converting at 12% locks in the lower rate forever.
Reducing RMDs. Traditional IRAs force required minimum distributions starting at age 73 (75 under SECURE 2.0 for those born in 1960 or later). Large pre-tax balances mean large forced distributions, which can push you into higher brackets and trigger IRMAA Medicare premium increases. Conversions reduce the Traditional balance and the future RMDs.
Tax-free legacy. Inherited Roth IRAs are tax-free to beneficiaries under the SECURE Act's 10-year rule. Inherited Traditional IRAs force beneficiaries to withdraw (and pay ordinary income tax on) the balance within 10 years. Converting lets your heirs receive tax-free money instead.
Market drawdown opportunity. When the market is down 20%, converting a $50,000 balance is actually converting what was recently a $62,500 position. Future recovery happens tax-free in the Roth.
Hedge against future tax rate increases. If you expect federal rates to rise, paying tax now at known rates beats paying later at unknown higher rates.
The ideal conversion year has these characteristics:
Conversion math depends on your current vs future marginal rate. Rough breakeven:
But this ignores several realities:
Logistically, a Roth conversion is straightforward:
The custodian issues a 1099-R showing the distribution; you report it on Form 8606 and pay tax with your return (or via quarterly estimated payments to avoid underpayment penalties).
If you have any pre-tax money in any Traditional, SEP, or SIMPLE IRA, conversions are subject to the pro-rata rule. You can't cherry-pick "just the after-tax money" to convert — the IRS treats all IRA money as one pool for conversion purposes.
Example: you have a $90,000 Traditional IRA with pre-tax money and a $10,000 non-deductible Traditional IRA contribution. You convert $10,000. The IRS treats 90% as pre-tax (taxable) and 10% as already-taxed.
Result: $9,000 of the conversion is taxable, not zero. The remaining $9,000 of "basis" stays in your aggregate IRA, to be gradually released across future withdrawals.
Workaround: before doing Backdoor Roth contributions, roll existing pre-tax Traditional IRA balances into a 401(k) (if your plan accepts rollovers). This removes them from the pro-rata calculation.
The Roth Conversion page in Horizons lets you simulate multi-year conversion strategies. The engine projects the impact on your total taxes paid over your lifetime, your required minimum distributions, your Medicare premium tiers, and your estate outcome. Comparing "no conversions" to "convert to top of 22% bracket each year from 62 to 72" shows the long-run effect.
A 63-year-old retiree (not yet on Social Security) has $1.2M in a Traditional IRA. Their 2026 taxable income before any conversion is only their small pension — ~$35k. What's the argument for converting aggressively this year?
Try it in your scenario
Known limitations
Sources
Educational information distilled from the Horizons engine methodology — not individual financial advice.
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