What is a Roth conversion — and how does it work?
A Roth conversion is the process of moving money from a traditional IRA (or traditional 401k, SEP IRA, or SIMPLE IRA) into a Roth IRA. The converted amount is added to your ordinary income in the year of conversion and taxed at your marginal federal (and state) income tax rate. Once in the Roth IRA, the money grows tax-free and qualified withdrawals in retirement are entirely tax-free.
There is no income limit on Roth conversions — anyone can convert regardless of how much they earn. There is also no dollar limit on the amount you can convert in a single year (unlike the $7,500 annual Roth IRA contribution limit in 2026). You can convert a small slice or your entire traditional IRA balance in one move.
The core math: pay taxes now vs pay taxes later
The fundamental question in a Roth conversion is: will you pay more tax converting now or withdrawing in retirement?
When you convert today, you pay tax at your current marginal rate. When you leave money in a traditional IRA, it grows tax-deferred and you pay tax on withdrawals at whatever your ordinary income tax rate is at the time of withdrawal. The Roth conversion makes mathematical sense if your current effective tax rate on the conversion is lower than your expected marginal rate at withdrawal.
The calculation is complicated by one important factor: the opportunity cost of paying the tax today. If you pay tax on the conversion from funds outside the IRA (which is the correct approach — never withhold taxes from the converted amount itself), that tax money could have been invested. Our calculator accounts for this opportunity cost in the net advantage calculation.
When Roth conversion makes sense
Low-income years
Any year your income is unusually low is a prime conversion window. This includes: sabbaticals, career changes, gap years between jobs, the year of a business sale before proceeds are distributed, years with large itemised deductions, or the period between retirement and when Social Security benefits begin.
Early retirement before RMDs begin
The years between retirement and your RMD start age (73, or 75 if you were born in 1960 or later) are often a "golden window" for Roth conversions. Your income is lower because you have stopped working, Social Security may not have started, and Required Minimum Distributions have not yet begun. Converting during this window systematically reduces your future RMD burden.
Large traditional IRA creating future RMD problems
A $1M–$2M traditional IRA will generate RMDs of roughly $38,000–$81,000 a year starting at age 73 (75 if you were born in 1960 or later), stacked on top of Social Security and any other income. This can push retirees into unexpectedly high tax brackets. Pre-retirement Roth conversions reduce the traditional IRA balance, reducing future RMDs and giving you more control over your taxable income in retirement.
Roth conversion ladder for early retirement (FIRE)
Early retirees who leave the workforce before 59½ often use a Roth conversion ladder to access retirement funds without penalty. The strategy involves converting traditional IRA funds to Roth each year, then withdrawing the converted principal 5 years later (tax and penalty-free). This creates a rolling pipeline of accessible funds for people who retire a decade or more before traditional retirement age.
When traditional wins: keeping money in the IRA
Roth conversion does not always make financial sense. Traditional wins when:
- You are in your peak earning years. If you are currently in the 32% or 35% bracket and expect to be in the 22% bracket in retirement, paying 32–35% now to avoid 22% later is mathematically unfavourable.
- Short time horizon. If you are 70 and converting funds you will need in 3 years, there is limited time for tax-free growth to offset the upfront tax cost.
- You expect significantly lower income in retirement. If your retirement income will be modest — below the standard deduction plus 10–12% bracket — traditional IRA withdrawals may be very lightly taxed, making Roth conversion unnecessary.
The bracket-filling strategy
Rather than doing one large conversion, many tax planners recommend the "bracket-filling" approach: each year, convert just enough to fill your current bracket to the top — but not a dollar more. This maximises the amount converted at the current rate while avoiding the higher rate in the next bracket.
The two most common targets are the top of the 12% bracket ($50,400 single / $100,800 MFJ for 2026) and the top of the 22% bracket ($105,700 single / $211,400 MFJ). For retirees with modest SS income and no other earnings, converting to the top of 12% each year over a 5–10 year window can dramatically reduce traditional IRA balances at a very low effective rate.
IRMAA: the hidden Medicare surcharge
IRMAA (Income-Related Monthly Adjustment Amount) is one of the most overlooked risks in Roth conversion planning. Medicare Part B and Part D surcharges apply to beneficiaries whose MAGI exceeds certain thresholds, and Roth conversions increase MAGI in the year of conversion.
The 2026 IRMAA thresholds are $109,000 (single) and $218,000 (MFJ) — IRMAA applies only above those. Crossing a threshold by a single dollar moves you into the next bracket for the whole year, and the surcharge is charged per person, on Part B and Part D. The surcharge steps up by bracket: crossing the first threshold puts you in the first tier, not the top one. These are the 2026 tiers, on top of the federal income tax on the conversion:
| Single MAGI | Joint MAGI | Part B | Part D |
|---|---|---|---|
| $109,000 or less | $218,000 or less | $0.00 | $0.00 |
| $109,001 – $137,000 | $218,001 – $274,000 | $81.20 | $14.50 |
| $137,001 – $171,000 | $274,001 – $342,000 | $202.90 | $37.50 |
| $171,001 – $205,000 | $342,001 – $410,000 | $324.60 | $60.40 |
| $205,001 – $499,999 | $410,001 – $749,999 | $446.30 | $83.30 |
| $500,000 or more | $750,000 or more | $487.00 | $91.00 |
The Part B and Part D columns are the monthly surcharge per person. Part B's is added to the $202.90 standard premium, Part D's to your drug plan's own premium. Married couples who file separately and lived together at any point in the year face a steeper schedule. Sources: CMS, "2026 Medicare Parts A & B Premiums and Deductibles"; SSA POMS HI 01101.020.
Critically, IRMAA is calculated on income from two years prior. A Roth conversion in 2026 affects your 2028 Medicare premiums, which will follow the 2028 table (CMS updates the tiers every year). Plan accordingly, and if your MAGI is near an IRMAA threshold, consider splitting the conversion across two calendar years.
Social Security and Roth conversions
A Roth conversion can cause more of your Social Security benefits to become taxable. Up to 85% of SS benefits are taxable when your "provisional income" (AGI + tax-exempt interest + 50% of SS benefits) exceeds $34,000 for single filers or $44,000 for MFJ. A large conversion can push you over this threshold, effectively increasing your tax rate beyond the nominal marginal rate on the conversion.
The 5-year rule
Each Roth conversion starts its own 5-year clock. Converted principal (not earnings) can be withdrawn penalty-free after 5 years from the conversion date, regardless of age. This is the foundation of the Roth conversion ladder for early retirees. However, if you withdraw converted principal before the 5-year window closes and you are under 59½, the 10% early withdrawal penalty applies — even though you already paid income tax on the conversion. Track each conversion year carefully.
Backdoor Roth: for high earners above the income limit
Direct Roth IRA contributions phase out for 2026 at MAGI of $153,000-$168,000 for single and head of household filers, and $242,000-$252,000 for MFJ filers (IRS Notice 2025-67). High earners who cannot contribute directly to a Roth can use the backdoor Roth strategy: make a non-deductible traditional IRA contribution ($7,500 for 2026, or $8,600 at 50+), then immediately convert it to Roth. Since the contribution was non-deductible (after-tax), no additional tax is owed on the conversion — unless the pro-rata rule applies.
The pro-rata rule warning
If you have any pre-tax funds in a traditional IRA — from prior deductible contributions or rollover 401k funds — the pro-rata rule applies to backdoor Roth conversions. The IRS calculates your conversion as a blend of pre-tax and after-tax dollars based on the ratio of your total pre-tax IRA balance to your total IRA balance. This can make the backdoor Roth significantly more expensive for people with large traditional IRAs. One solution is a "reverse rollover" — moving your traditional IRA balance into an employer 401k (if the plan allows) to clear the pro-rata denominator.
Frequently asked questions
When does a Roth conversion make financial sense?
When your current marginal rate is lower than your expected rate at withdrawal — most commonly in low-income years, early retirement before SS and RMDs begin, or during systematic bracket-filling conversions in the 12% or 22% band.
What is the IRMAA surcharge and how does a Roth conversion affect it?
IRMAA is a Medicare Part B/D surcharge that applies when your MAGI exceeds $109,000 (single) or $218,000 (MFJ) for 2026. Roth conversions increase MAGI and can trigger or worsen IRMAA surcharges — which are calculated on income from two years prior. A large conversion in 2026 could affect your 2028 Medicare premiums. The 2026 tiers are in the table above.
Should I do a Roth conversion if I am in the 22% bracket?
Often yes — if you expect to be in 22% or higher in retirement (due to RMDs, SS, and other income), locking in the known 22% rate now via bracket-filling conversions is a well-regarded strategy. Compare your expected blended retirement rate to your current effective rate on the conversion, not just the nominal marginal rate.
Can I undo a Roth conversion?
No. Roth recharacterization was eliminated by the Tax Cuts and Jobs Act of 2017 for conversions made after December 31, 2017. Conversions are permanent. Model carefully before converting.
What is a Roth conversion ladder?
A strategy for early retirees to access traditional IRA funds before 59½ penalty-free. Convert each year, wait 5 years, then withdraw the converted principal tax and penalty-free — creating a rolling pipeline of accessible funds for FIRE retirees.