The Steward's Desk · Tax planning
A conversion trades a known tax bill now for tax-free treatment later. Here's how the trade works, and when it tends to be worth making.
Jesse Plunkett, CEPA®, CRPC®
July 12, 2026 · Meet your advisor · 
A Roth conversion moves money from a traditional IRA or similar tax-deferred account into a Roth IRA. The amount you convert counts as ordinary income in the year you convert, so you pay tax on it now. In exchange, qualified withdrawals later are tax-free, and the original owner never faces required distributions.
That's the whole mechanism. The strategy sits in one question: is the tax you'd pay on those dollars today lower than the tax you'd pay on them later? When the answer is yes, converting moves money from a higher-tax future into a lower-tax present. When the answer is no, leaving the money deferred is the better trade. Nobody knows future tax law for certain, which is why conversions get decided year by year rather than once.
The comparison is less of a guess than it sounds. Your own retirement timeline, required distributions with known start ages, and the reality that a surviving spouse eventually files as a single taxpayer at steeper rates are all visible years in advance, and they do most of the forecasting for you.
Most often in lower-bracket years, and the classic one is the window between retiring and the start of required minimum distributions, which begin at age 73 for those born 1951 through 1959 and at 75 for those born in 1960 or later under the SECURE 2.0 Act.
In that window, the paycheck has stopped, Social Security may not have started, and the required withdrawals that will eventually fill your tax return haven't begun. Your bracket can dip lower than it has been in decades, and lower than it will be again. Converting then fills inexpensive bracket space on purpose, and it shrinks the deferred balance that future required distributions will be calculated on. Other low years count too: a sabbatical, a business loss year, the first year of an early retirement.
| Your situation | What the tradeoff looks like |
|---|---|
| Retired, but required distributions haven't started | Brackets are temporarily low, and each conversion shrinks the balance future required withdrawals are calculated on. |
| Still working in peak earning years | A conversion now is taxed at your highest rates, which is the opposite of the goal. |
| Within a few years of Medicare, or already on it | Run the premium math first. IRMAA surcharges look at income from two years earlier, so a conversion at 63 can show up in your premiums at 65. |
| Heirs likely to inherit during their own peak earning years | Under the SECURE Act's 10-year rule, most non-spouse heirs must empty an inherited IRA within a decade, and tax-deferred dollars arrive as taxable income. |
| The conversion tax would have to come out of the IRA itself | The trade weakens when the converted amount shrinks to pay its own tax bill. |
Most conversion talk is about tax rates, but a downturn adds a second reason that has nothing to do with rates. When markets fall, the dollars in your IRA fall with them, and a conversion is taxed on the dollars you move, not the dollars you started with. Converting while values are temporarily down means paying tax on a smaller sum now, and letting the recovery happen inside the Roth, where qualified growth is tax-free.
A simple example shows the idea. Say you planned to convert a fund position worth $100,000, and a market drop takes it to $75,000. Convert at $75,000 in the 24% bracket and the tax is about $18,000. The same shares, converted at $100,000, would have cost about $24,000. You moved the identical investment into the Roth for roughly $6,000 less tax, and when it climbs back to $100,000, that $25,000 of recovery is now tax-free rather than tax-deferred. Nothing about the shares changed; only the tax bill did. This is a hypothetical for illustration, not advice or a projection, and it sets aside state taxes and the details of your own bracket, which is where your actual number is decided.
A conversion is partly a bet on future tax rates, so it is worth asking how likely today's rates are to last. By the standard of American history, current federal income tax rates are on the low side. The top marginal rate was 91% for most of the 1950s (92% in 1952 and 1953) and held at 70% from 1965 until the Reagan-era tax cuts took effect in the early 1980s, according to the Tax Foundation's historical rate tables. Today's top rate, 37%, is far below either era. Rates have moved a great deal over the last century, and the recent era of relatively low rates is not a permanent setting.
Two forces are worth weighing. First, the U.S. Treasury reported total public debt above $39 trillion as of mid-2026, more than at any point in the nation's history, and debt has to be serviced, which puts long-run pressure on rates. Second, the OECD's 2025 Revenue Statistics report put total U.S. tax revenue at 25.6% of GDP in 2024, versus a 34.1% average across OECD member nations, among the lowest ratios of the 38 countries measured. Compared with peers like these, the U.S. collects a smaller share of its economy in taxes, which leaves room to rise toward that average rather than away from it. None of this is a forecast. Nobody knows what Congress will do, and rates can fall as well as climb. The takeaway is a modest one: being confident that today's low rates will persist for decades is a large assumption to build a plan on, and a conversion is one way to take some of that uncertainty off the table by paying a known rate now.
The tax on the converted amount, due at ordinary income rates for the year you convert. The bill arrives now, while the benefit arrives over years of tax-free growth, which is why the size of each conversion gets decided carefully, one year at a time.
Conversions also ripple into places you might not expect. Medicare premium surcharges, known as IRMAA, are based on your income from two years earlier, so a large conversion in your mid-sixties can raise your premiums two years later. The increase is temporary, but it belongs in the math before you convert, not after.
Where the tax payment comes from changes the outcome too. Paying it from a taxable account, rather than from the converted dollars themselves, leaves the full amount growing tax-free inside the Roth. When the tax has to come out of the conversion itself, the trade gets noticeably worse, and under age 59 1/2 it can add a penalty on top.
Enough to use the low-bracket space a given year offers, and no more. The usual shape is a series of moderate conversions across several years rather than one large one, because a single big conversion can push income into higher brackets and across Medicare thresholds all at once.
Sizing carefully also means respecting that conversions are permanent. Since the Tax Cuts and Jobs Act took effect in 2018, a Roth conversion cannot be undone, so I size them late in the year, when the income picture is nearly complete, rather than converting a round number in January and hoping.
The whole tax return comes along for the ride. Conversion income interacts with everything else on the return, including how much of your Social Security is taxable, since up to 85 percent of benefits can be federally taxable depending on your other income. The same conversion amount can cost different totals in different years, which is why each one gets run against your actual numbers. If you're weighing whether future contributions should go Roth or traditional in the first place, the Roth vs. Traditional calculator shows how the same trade works on the way in.
Sizing conversions is one of the most common projects I run with clients each fall. A short call is the place to start.
It depends on your income and tax picture. The window after you stop earning and before required distributions begin is often when the math is most favorable, because your bracket may be lower then than it will be later, and converting moves money into tax-free growth while that window is open. What would make it not fit: a year when your income is already high, or a conversion large enough to push you into a higher bracket. We run the numbers before landing on an amount.
It can. Roth conversions count as income in the year you convert, and Medicare premium surcharges (IRMAA) are based on your income from two years earlier, so a large conversion can trigger a temporary increase. We weigh that cost against the long-term tax benefit before recommending a conversion amount.
No. Recharacterizing a conversion was eliminated by the Tax Cuts and Jobs Act starting in 2018, so once money is converted, it stays converted and the tax is owed. That permanence is why conversions get sized late in the year, when your income picture is nearly complete, instead of guessed at in January.
No, converting itself carries no early-withdrawal penalty at any age. Two cautions apply if you're under 59 1/2: each conversion starts its own five-year clock before the converted amount can come out penalty-free, and paying the conversion tax with IRA dollars can trigger a penalty on the amount withheld. Timing and funding source both get planned.