Compare converting now and paying tax today against leaving the money to grow and be taxed in retirement.
Conversion advantage
$32,688
After-tax difference at withdrawal.
All tax-free.
Tax money invested instead.
Converting $100,000 costs $22,000 in tax today at 22%. Paying that from outside savings puts the full $100,000 in the Roth, growing to $386,968 tax-free over 20 years. Leaving it in the traditional account gives $386,968 taxed at 28% — $354,280 after tax including the side fund.
Converting works best when you can pay the tax bill from savings outside the retirement account. That way the full $100,000 keeps compounding tax-free, effectively moving extra money into a tax-sheltered account. If you have to pay the tax out of the conversion itself, the math gets much less attractive — as you can see by switching the option above.
The ideal window is when your taxable income is unusually low — early retirement before Social Security and RMDs begin, a gap year, or a sabbatical. Converting then fills up lower tax brackets cheaply. Converting in a high-income year, by contrast, can push you into a higher bracket and trigger Medicare IRMAA surcharges two years later.
Money moved to a Roth is permanently out of the RMD pool, since Roth IRAs have no lifetime required distributions. See what your RMDs would otherwise look like.
RMD calculatorWorked scenarios with the full analysis, so you can see how the numbers move before entering your own.
A saver expecting higher rates in retirement, paying the tax from outside savings.
Conversion advantage
$32,688
Converting $100,000 costs $22,000 in tax today at 22%. Paying that from outside savings puts the full $100,000 in the Roth, growing to $386,968 tax-free over 20 years. Leaving it in the traditional account gives $386,968 taxed at 28% — $354,280 after tax including the side fund.
Converting works best when you can pay the tax bill from savings outside the retirement account. That way the full $100,000 keeps compounding tax-free, effectively moving extra money into a tax-sheltered account. If you have to pay the tax out of the conversion itself, the math gets much less attractive — as you can see by switching the option above.
The ideal window is when your taxable income is unusually low — early retirement before Social Security and RMDs begin, a gap year, or a sabbatical. Converting then fills up lower tax brackets cheaply. Converting in a high-income year, by contrast, can push you into a higher bracket and trigger Medicare IRMAA surcharges two years later.
Someone expecting to drop into a lower bracket later, where converting costs more than it saves.
Cost of converting
$19,147
Converting $100,000 costs $32,000 in tax today at 32%. Paying that from outside savings puts the full $100,000 in the Roth, growing to $275,903 tax-free over 15 years. Leaving it in the traditional account gives $275,903 taxed at 22% — $295,050 after tax including the side fund.
Converting works best when you can pay the tax bill from savings outside the retirement account. That way the full $100,000 keeps compounding tax-free, effectively moving extra money into a tax-sheltered account. If you have to pay the tax out of the conversion itself, the math gets much less attractive — as you can see by switching the option above.
The ideal window is when your taxable income is unusually low — early retirement before Social Security and RMDs begin, a gap year, or a sabbatical. Converting then fills up lower tax brackets cheaply. Converting in a high-income year, by contrast, can push you into a higher bracket and trigger Medicare IRMAA surcharges two years later.
Without outside funds to cover the tax, less lands in the Roth and the case weakens.
Cost of converting
$0
Converting $100,000 costs $24,000 in tax today at 24%. Paying it from the conversion leaves $76,000 in the Roth, growing to $294,096 tax-free over 20 years. Leaving it in the traditional account gives $386,968 taxed at 24% — $294,096 after tax.
Using $24,000 of the converted amount to cover the tax means only $76,000 actually reaches the Roth, and if you're under 59½ that portion may also face a 10% penalty. Conversions are far more compelling when the tax can be paid from outside savings.
The ideal window is when your taxable income is unusually low — early retirement before Social Security and RMDs begin, a gap year, or a sabbatical. Converting then fills up lower tax brackets cheaply. Converting in a high-income year, by contrast, can push you into a higher bracket and trigger Medicare IRMAA surcharges two years later.
Converting in a low-income year before Social Security and RMDs begin.
Conversion advantage
$21,765
Converting $60,000 costs $7,200 in tax today at 12%. Paying that from outside savings puts the full $60,000 in the Roth, growing to $165,542 tax-free over 15 years. Leaving it in the traditional account gives $165,542 taxed at 24% — $143,777 after tax including the side fund.
Converting works best when you can pay the tax bill from savings outside the retirement account. That way the full $60,000 keeps compounding tax-free, effectively moving extra money into a tax-sheltered account. If you have to pay the tax out of the conversion itself, the math gets much less attractive — as you can see by switching the option above.
The ideal window is when your taxable income is unusually low — early retirement before Social Security and RMDs begin, a gap year, or a sabbatical. Converting then fills up lower tax brackets cheaply. Converting in a high-income year, by contrast, can push you into a higher bracket and trigger Medicare IRMAA surcharges two years later.
A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. The converted amount is added to your taxable income for the year, so you pay income tax on it now. In exchange, that money — and all its future growth — becomes permanently tax-free, and it's no longer subject to required minimum distributions.
The decision is essentially the traditional-vs-Roth question applied to money you already have: is your tax rate lower now than it will be when you'd otherwise withdraw? If yes, converting locks in the cheaper rate. There's no income limit on conversions, which is why higher earners use them (including via the 'backdoor Roth').
Three conditions make a conversion compelling. First, you expect a higher tax rate later than today — paying now at the lower rate wins. Second, you can pay the tax from outside savings, so the entire converted balance keeps compounding tax-free; paying tax from the conversion itself shrinks the Roth and, under 59½, can trigger a penalty on that portion. Third, you have a long horizon for the tax-free growth to work.
The best timing is usually a low-income year: early retirement before Social Security and RMDs begin, a career gap, or a sabbatical. Converting then fills lower brackets cheaply. Be careful of second-order effects — a large conversion can push you into a higher bracket, increase the taxable share of Social Security, and raise Medicare premiums via IRMAA two years later. Many people convert in measured annual chunks rather than all at once.
Using converted funds for the tax shrinks the Roth and can trigger a penalty under 59½. Pay from outside savings.
A large conversion can spike your bracket and trigger Medicare IRMAA surcharges. Convert in measured annual chunks.
Conversions are cheapest in low-income years. Doing one at peak earnings pays the highest possible rate.
Converted amounts have their own five-year clock before penalty-free withdrawal. Don't convert money you'll need soon.
Conversions are usually taxable at the state level too. A move to a no-tax state can change the math significantly.
It makes sense if you expect a higher tax rate in retirement than today, can pay the conversion tax from outside savings, and have a long horizon for tax-free growth. It's less attractive if you expect a lower rate later or would have to pay the tax from the converted amount. Enter your rates above to see the comparison.
The converted amount is added to your taxable income and taxed at your marginal rate. Converting $100,000 at a 22% marginal rate costs about $22,000 — though a large conversion can push part of the amount into higher brackets, so the effective rate may exceed your starting bracket. State tax may apply too.
In a low-income year — early retirement before Social Security and RMDs start, a gap year, or a sabbatical. Converting then fills up lower tax brackets cheaply. Many people convert in measured annual amounts across several such years rather than one large conversion that spikes their bracket.
From outside funds, whenever possible. Paying from savings lets the entire converted balance keep compounding tax-free, which is where most of the benefit comes from. Paying from the conversion itself reduces what reaches the Roth, and if you're under 59½ that withheld portion can also trigger a 10% penalty.
Yes. Money moved into a Roth IRA is permanently removed from the pool subject to required minimum distributions, since Roth IRAs have no RMDs during the owner's lifetime. For retirees facing large future RMDs that would push them into higher brackets, this is often the main reason to convert.
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