Partial or full Roth conversions require a multifaceted analysis. The strategy is heavily dependent on individual circumstances, and changes incorporated in the SECURE Act — including modifications to the required minimum distribution (RMD) rules and tax implications for beneficiaries who inherit an IRA or Roth IRA — make this a good time to consider the strategy.
Here are three important considerations to work through with your financial advisor and accountant when deciding whether to convert your traditional (pretax) IRA into a Roth IRA.
Are you worried about the taxes you might have to pay if you change your traditional IRA to a Roth IRA? I totally get it. The tax consequences of a Roth conversion made me break out in a cold sweat the first time I thought about it. But guess what? There are real ways to make that tax bill a lot less painful.
This detailed guide will show you tried-and-true ways to lower (not get rid of—sorry, the IRS always gets their cut!) the taxes that come with converting your IRA to a Roth account. Let’s dive in and save you some serious money!.
Why Convert to a Roth IRA Anyway?
Before we jump into tax-saving strategies, let’s quickly review why you might want to convert in the first place:
- Tax-free withdrawals in retirement (both contributions AND earnings)
- No Required Minimum Distributions (RMDs) starting at age 73
- Tax-free inheritance for your beneficiaries
- Protection against future tax rate increases
For many of us, converting our IRA to a Roth account makes a lot of sense in the long run, especially if we think our tax rates will be higher when we retire. But that upfront tax bill? It can be a doozy.
Understanding the Roth Conversion Tax Hit
When you convert from a traditional IRA to a Roth IRA, you’re essentially paying taxes now to avoid them later. The entire converted amount gets added to your taxable income for the year. For example, if you convert $100000 your taxable income goes up by $100,000. Yikes!
But don’t panic—here are seven strategic ways to soften that blow.
1. Max Out Your Current Tax Bracket (Don’t Jump to a Higher One!)
This is probably the most powerful strategy in your arsenal. The U.S. tax system uses marginal tax brackets, and each dollar gets taxed according to which bracket it falls into.
Here’s a practical example
Let’s say you’re single and make $150,000 in 2025. This puts you in the 24% federal tax bracket, which goes up to $197,300. That means you could potentially convert up to $47,300 ($197,300 – $150,000) and stay within your current bracket.
Converting any more would push you into the next bracket, where those additional dollars would be taxed at a higher rate. Why pay more than necessary?
2. Spread Out Your Conversion Over Multiple Years
Instead of ripping off the band-aid with one massive conversion, consider staggering it over several years. This “conversion over time” approach can significantly reduce your overall tax burden.
For instance, rather than converting $300,000 in one year (which would likely push you into the top tax brackets), you might convert $50,000 per year for six years. This keeps you in lower tax brackets each year and reduces the cumulative tax hit.
An added bonus: this strategy makes the annual tax bills much more manageable for your cash flow.
3. Time Your Conversion for Lower-Income Years
Did you recently retire but haven’t started taking Social Security yet? Are you between jobs or taking a sabbatical? Maybe you’re starting a business that’s showing initial losses?
These temporary dips in income create perfect opportunities for Roth conversions since your tax bracket might be unusually low. I had a client who timed her conversion during a 6-month sabbatical and saved thousands in taxes!
4. Offset Conversion Income with Capital Losses
If you have investments that have decreased in value, consider selling them to realize capital losses that can offset some of the conversion income.
You can use capital losses to:
- Offset capital gains down to $0
- Reduce your ordinary income by up to $3,000 per year
- Carry forward remaining losses to future years
This strategy works especially well during market downturns when you might have multiple losing positions in your taxable accounts.
5. Convert During Market Downturns
Speaking of market downturns, they present an ideal time to convert! When your IRA balance temporarily drops due to market conditions, you’ll pay taxes on a smaller balance.
In the event that your $100,000 IRA drops to $80,000 during a market correction, you will only have to pay taxes on the $80,000. Then, when the market goes up again, all of that growth in your Roth IRA is not taxed at all!
It’s like buying stocks on sale AND getting a tax discount simultaneously!
6. Pay Conversion Taxes from Non-Retirement Funds
This isn’t exactly avoiding taxes, but it maximizes your conversion benefits. When possible, pay the conversion tax bill from your non-retirement accounts rather than from the IRA funds themselves.
Why? Every dollar you withdraw from your IRA to pay taxes is a dollar that won’t compound tax-free in your Roth for decades to come. The long-term opportunity cost is enormous!
7. Be Mindful of Income-Triggered Programs and Benefits
A major conversion can temporarily inflate your income, which might affect:
- Medicare premiums (IRMAA surcharges)
- Social Security taxation
- College financial aid
- Income-based tax credits
- Eligibility for certain healthcare subsidies
Before converting, check if you’re close to any income thresholds that could trigger higher costs or reduced benefits. Sometimes delaying or accelerating a conversion by just a few months can make a big difference.
Real-World Case Study: How We Saved Maria $32,000 in Conversion Taxes
One of our clients, Maria (not her real name), had a $400,000 traditional IRA she wanted to convert. Her normal income was about $85,000 per year.
If she had converted everything at once, she would’ve paid approximately $147,000 in federal taxes. Instead, we implemented a 4-year conversion strategy, maxing out her current tax bracket each year. The result? Her total federal tax bill was around $115,000—saving her $32,000!
Even better, the final portion of her conversion happened during the 2020 market dip, further reducing her tax bill while allowing her to capture the recovery in a tax-free environment.
Important Considerations Before Converting
While these strategies can significantly reduce your conversion tax burden, keep these critical points in mind:
- Five-Year Rule: You cannot make penalty-free withdrawals from a Roth IRA until five years after your first contribution or conversion.
- Opportunity Cost: The longer you delay conversion, the more time your traditional IRA continues growing in a tax-deferred (not tax-free) environment.
- Professional Guidance: The optimal conversion strategy depends on your unique financial situation. Working with a financial advisor or tax professional can help you make the right decision.
- End-of-Year Timing: We generally recommend waiting until later in the year to execute conversions, when you have a clearer picture of your total annual income.
The Bottom Line: Plan Your Conversion Thoughtfully
Converting to a Roth IRA is often a smart long-term tax move, but it requires careful planning to minimize the upfront tax hit. By strategically timing your conversion, spreading it across multiple years, and taking advantage of market downturns, you can significantly reduce the tax impact.
Remember, you can’t completely avoid taxes on a Roth conversion—that’s simply how the tax code works. But with proper planning, you can make that tax bill much more manageable while setting yourself up for decades of tax-free growth.
Have you done a Roth conversion? What strategies worked best for you? Share your experiences in the comments below!
Disclaimer: This article is intended for general and informational purposes only and should not be considered personalized tax or investment advice. Tax laws change frequently, and individual situations vary. Please consult with a qualified tax professional or financial advisor before implementing any of these strategies.
Understand your tax rates and the tax rates of your beneficiaries
The Tax Cuts and Jobs Act of 2017 (TCJA) lowered income tax rates for everyone, no matter how they filed their taxes or how much money they made. However, the lower rates will no longer apply after January 1, 2022. 1, 2026, absent any action by Congress. With Republicans winning the House, Senate, and presidency in the November 2024 elections, many observers believe the chances of the Trump-era tax cuts being extended beyond 2025 have increased. For married couples who file a joint return, the top of the 24% bracket is $394,600 in 2025. Pre-TCJA, that same income level landed those taxpayers squarely in the 33% bracket. Therefore, there’s currently an opportunity through year-end to potentially take advantage of a lower bracket for the same amount of income. However, tax rates could be the same or even lower in the future.
No matter if tax reform is extended or passed, Roth conversion strategies should be thought about because they allow earnings to grow tax-free. If your current marginal tax rate is lower than your expected tax rate in the future, it could be advantageous to convert now. This may be the case for newly retired taxpayers who haven’t started drawing on Social Security and/or haven’t begun taking RMDs from their IRAs or 401(k) plans. It can be beneficial to use up lower tax brackets via “micro-conversions” (converting smaller amounts over a longer time horizon) before your marginal tax rate potentially increases. Roth conversion strategies should be considered because of the tax-free compounding benefits.
Roth conversions are taxed as ordinary income; however, conversions can impact the taxability of more favorable income as well, like long-term capital gains and qualified dividends. Depending on income level, capital gains and qualified dividends can be taxed at 0, 15, 18. 8, or 23. 8%. Other income may be taxed more if you convert it to a Roth, which is something that you should think about in any conversion situation. If you’re collecting Social Security or on Medicare, a Roth conversion can impact taxability of your Social Security benefits and increase Medicare Part B & D premiums based on the Income-Related Monthly Adjustment Amount (IRMAA) rules.
State income tax rates should also be considered in your analysis since IRA distributions are subject to both federal and state income tax. IRA owners who name beneficiaries in states other than their own must consider multiple state income tax rates. For example, an individual in Florida or Texas will pay no state income tax on a Roth conversion due to those states not having any state income tax. However, if they leave their pretax IRA to their child who lives in California, that child could pay up to 13.3% (2025) in state income taxes when money is distributed, especially if that child is in the prime earning years of their own career. In this example, Roth conversions can save the next generation a significant amount of income taxes. Roth conversions can save the next generation a significant amount of income taxes.
Can your cash flow support a Roth conversion?
The most attractive aspect of a Roth conversion is to begin compounding tax-free growth on an investment that can span the rest of your (or your spouse’s) lifetime, plus potentially 10 years after that. Therefore, the earlier you can convert, the better the math becomes. How early this can be done depends on your individual cash flow considerations. If you can’t pay the conversion tax using non-IRA assets, using IRA funds will reduce the amount in the Roth IRA that can benefit from tax-free growth. If you rely heavily on your 401(k) or IRA to fund your lifestyle in retirement, Roth conversions may be less appealing since distributions reduce the time horizon available for compounding tax-free growth. Additionally, if you’re under age 59.5 and use IRA funds to pay the conversion tax, you’ll be subject to a 10% early withdrawal penalty on the amount that gets withheld.
Incredible IRA “HACK” For Paying Roth Conversion Taxes
FAQ
What is the sweet spot for Roth conversion?
Many times, the “conversion sweet spot” is between retirement and the start of RMDs. However, it could also be in years when income is lower than usual. Spreading conversions over multiple years can help manage tax brackets and avoid Medicare surcharges as you become Medicare eligible.
When to pay taxes on Roth conversion?
When you convert your Roth to a traditional IRA, you have to pay taxes on the change in the year it happens. Usually, you have until the tax filing deadline the following year to pay the taxes. The converted amount is added to your gross income for the year of the conversion.
What is the best strategy to avoid tax consequences when transferring assets from one IRA to another?
By making a direct rollover or direct transfer between IRA accounts, you avoid triggering taxes.Aug 12, 2025
At what age should you stop doing Roth conversions?
If you need the money quickly or don’t have enough time for the tax-free growth to outweigh the out-of-pocket costs, a Roth conversion may not be a good idea after age 60 or 70. However, there is no set age at which it’s too late; conversions can still be a useful tool for estate planning that lets you leave tax-free gifts to loved ones.
Can I convert my IRA to a Roth without losing money?
If you are in the 28% tax bracket, you will be able to convert $50,000 of your IRA into a Roth without losing money. The rollover will result in a $14,000 tax liability ($50,000 X 0.28), but that will be offset by the 7% bonus that you will be paid on the $200,000 rollover to the annuity — which will be $14,000 ($200,000 X 0.07).
Can you avoid paying taxes on a Roth conversion?
You cannot avoid paying taxes on this money, however you can reduce the impact of a conversion. Here are a few strategies to consider. A financial advisor can help you weigh the pros and cons of a Roth conversion in your personal situation. Next Steps: Planning for your taxes can be overwhelming. We recommend speaking with a financial advisor.
How can I reduce the impact of a Roth IRA conversion?
By staggering out your conversion or timing it for years in which you have low tax liability or portfolio losses, you can reduce the impact of a Roth IRA conversion. Let’s review how a conversion tax planning strategy works, and what to consider.
Should you convert a traditional IRA to a Roth IRA?
The benefits of converting a Traditional IRA to a Roth IRA are numerous, so here’s a quick refresher: The downside of doing a Roth IRA conversion is that the amount of your IRA funds that are transferred to a Roth IRA will become taxable in the year of conversion.
Are Roth IRA conversions tax-free?
Roth accounts are tax-free for heirs. If one spouse dies, the surviving spouse can use the Roth IRA without worrying about RMDs. When both pass away, their heirs inherit tax-free income (as long as the account is held for at least 5 years). Roth IRA Conversions are a powerful way to take control of your retirement taxes.
What happens if you convert a Roth IRA?
Converted funds are taxed as ordinary income in the year of conversion, which may raise your marginal tax bracket, but you’ll be able to take tax-free withdrawals from the Roth IRA in the future. Withdrawing converted funds within five years of the conversion will trigger a 10% penalty.