What a conversion actually does
A Roth conversion moves money from a traditional IRA (or old 401(k)) into a Roth IRA. The converted amount is added to your taxable income this year — taxed at your marginal rate — and in exchange it grows tax-free forever, escapes required minimum distributions, and passes to heirs income-tax-free. There are no income limits and no cap: anyone can convert any amount in any year. The only question is whether the tax rate you lock in today beats the rate you'd otherwise pay later.
The core rule: it's (almost) all about the two rates
If your conversion is taxed at 22% today and withdrawals would have been taxed at 24% later, converting wins. Flip the rates and it loses. Equal rates: a near-wash — the commutative property of multiplication, since C × (1−t) × growth equals C × growth × (1−t). What tilts the balance beyond the headline rates:
- Paying the tax from outside cash is a stealth contribution. When the tax bill comes from a taxable brokerage account, the full pre-tax amount ends up in the Roth. You've effectively moved money from a taxed account into a never-taxed one — value the standard rate comparison misses. This calculator credits the no-convert scenario with that same cash growing (with dividend/capital-gains drag) to keep the fight fair.
- The conversion itself can push you into higher brackets. A $100,000 conversion doesn't all get taxed at your current rate — it stacks on top of your income and climbs the ladder. Check where the top of your current bracket sits with the tax bracket calculator and size conversions to fill, not overflow, the bracket.
- Future RMDs are the hidden tax raiser. Large traditional balances force out taxable income at 73/75 whether you need it or not — pushing up your rate, taxing more Social Security, and triggering Medicare IRMAA surcharges. Conversions shrink that time bomb; the RMD calculator shows how big yours is.
The gap years: prime conversion season
The classic window is between retirement and RMD age: salary has stopped, Social Security may be delayed, and taxable income collapses — sometimes to the 10-12% brackets. Converting six figures over several of those years at 12-22% instead of eventually withdrawing at 24-32% is one of the highest-value moves in retirement planning. A common tactic is bracket-filling: each December, convert exactly enough to reach the top of your target bracket, no further, and repeat annually.
Rules that bite
- Conversions are irreversible. Recharacterization (the undo button) was abolished in 2018. Convert only what you're sure about.
- Each conversion starts its own 5-year clock for penalty-free access to that converted principal before 59½. This is the engine of the "Roth conversion ladder" early retirees use: convert in year 1, spend penalty-free in year 6, repeat annually.
- Under 59½, don't pay tax from the conversion. The withheld portion counts as an early distribution — income tax plus the 10% penalty on money that never reaches the Roth. Pay from outside cash or wait.
- IRMAA look-back: Medicare premiums two years from now are set by this year's income. A big conversion at 63+ can raise your 65-year-old self's premiums by thousands. Still often worth it — but budget for it.
- The pro-rata rule applies if you have both deductible and non-deductible IRA money: conversions draw proportionally from both, so the tax bill may differ from the naive calculation.
Who usually shouldn't convert
Converting at your career-peak marginal rate (32-37%) to avoid a likely-lower retirement rate is paying a premium to dodge a discount. Same if you'll retire in a no-income-tax state but convert while living in California. And if the only way to pay the tax is from the IRA itself while under 59½, the penalty usually kills the deal. For the contribution-stage version of this decision — where new savings should go — use the Roth vs traditional 401(k) calculator; for what the whole retirement stack produces, the retirement savings calculator.