Roth Conversions · 6 min read

Roth Conversions: When They Pay Off and How to Time Them

The case for converting a traditional IRA to a Roth IRA is not universal — it depends on a single question: will the taxes you pay today cost less than the taxes your heirs or your future self will owe later? When the answer is yes, a conversion can be one of the most durable tax decisions an affluent household makes. When the answer is no, a rushed conversion simply accelerates a bill with nothing to show for it.

The window between retirement and the onset of required minimum distributions is often where the math tips most decisively in favor of converting. Understanding that window — and the guardrails around it — is the foundation of a sound Roth strategy.

When Conversions Pay Off

A Roth conversion moves pre-tax dollars from a traditional IRA into a Roth IRA. The converted amount is treated as ordinary income in the year of conversion. You pay the tax now; qualified withdrawals from the Roth — for you and your heirs — are tax-free.

Conversions tend to pay off when:

• Your current marginal rate is meaningfully lower than your expected future rate. This is the core arithmetic. A household converting at 22% today that avoids 32% distributions in retirement nets a 10-percentage-point gain on every dollar converted.
• You have sufficient non-IRA cash to pay the conversion tax without touching the converted funds. Paying the tax from the conversion itself reduces the compounding base and erodes much of the benefit.
• Your heirs are in a high tax bracket. Under SECURE 2.0's 10-year rule, most non-spouse beneficiaries must drain inherited traditional IRAs within a decade — potentially stacking significant ordinary income in their peak earning years.
• Your estate is large enough that the IRA will grow substantially before distribution. Tax-free compounding in a Roth amplifies the benefit over longer time horizons.

Conversions typically do not pay off when current rates exceed future expected rates, when the tax must be paid from the converted funds, or when the account holder's life expectancy is short.

The Pre-RMD Low-Bracket Window

The most valuable — and most time-limited — opportunity for most retirees is the gap between retirement and the start of required minimum distributions.

Under SECURE 2.0, the RMD starting age is 73 for those born 1951–1959 and 75 for those born 1960 or later (IRS.gov). Before RMDs begin, many households see their taxable income drop sharply: wages stop, Social Security may not yet be claimed, and the only income is discretionary. This creates a low-bracket window that may span 5–15 years depending on retirement age.

The 2026 federal tax brackets reward intentional use of this window:

(Source: Tax Foundation, 2026 Tax Brackets. Standard deductions for 2026: $16,100 single / $32,200 MFJ — IRS Rev. Proc. 2025-32.)

A married couple with modest pension income of $40,000 and the $32,200 standard deduction has roughly $60,000 of taxable-income headroom before breaching the 22% bracket, and roughly $160,000 of headroom before hitting 24%. Filling those brackets with annual conversions — rather than allowing the IRA to compound untouched and produce forced, larger distributions later — can meaningfully reduce lifetime tax cost.

The strategy is often called bracket-filling: convert just enough each year to reach (but not exceed) the top of a target bracket. No single conversion needs to be large; the benefit accumulates over the window years.

IRMAA and the Tax-Bracket Interaction

For households over age 63, Roth conversions carry a secondary cost that is easy to underestimate: the Medicare Income-Related Monthly Adjustment Amount, or IRMAA.

IRMAA is a two-year look-back surcharge on Medicare Part B and Part D premiums, based on your modified adjusted gross income (MAGI). In 2026, it is assessed on your 2024 MAGI (CMS.gov / Kiplinger). The key 2026 thresholds:

• Standard Part B premium: $202.90/month (no IRMAA)
• First IRMAA tier kicks in at: $109,000 MAGI (single) / $218,000 MAGI (MFJ)
• First-tier Part B premium: $284.90/month — an $81/month increase per person
• Tiers continue up to: $500,000 single / $750,000 MFJ, with monthly Part B premiums reaching $689.90

(Source: Kiplinger, Medicare Premiums 2026: IRMAA Brackets.)

IRMAA is a cliff system: exceeding a threshold by $1 triggers the full surcharge for that tier. A conversion that pushes MAGI just over $218,000 for a married couple adds roughly $2,000 in Part B premiums for each Medicare-enrolled spouse — a cost that belongs in the conversion math.

Practical implication: when designing annual conversions, model both the marginal income tax cost and the IRMAA impact. The 22%-to-24% income-tax bracket jump matters less if it also triggers IRMAA. For many households, the optimal conversion amount stops $3,000–$5,000 below an IRMAA threshold, not at the income-tax bracket ceiling.

The 5-Year Rules: There Are Two of Them

Roth accounts are governed by two separate five-year holding periods. Confusing them is one of the most common planning errors we encounter.

Rule 1 — Earnings. To withdraw Roth earnings tax-free and penalty-free, the account holder must be at least 59½ and at least five years must have elapsed since January 1 of the tax year of their first-ever Roth IRA contribution. There is one clock; it never resets; it applies across all Roth IRAs you own.

Rule 2 — Conversions. Each conversion creates its own five-year clock, starting January 1 of the year the conversion occurs. If you are under age 59½, withdrawing converted principal before five years triggers the 10% early withdrawal penalty on that converted amount. (The income tax was already paid at conversion; this is only the penalty.)

Key practical points:

• After age 59½, Rule 2 does not apply to the 10% penalty — conversions can be accessed before their five-year clock expires without penalty.
• Rule 1 still applies to earnings even after 59½ — though for most retirees the five-year contribution clock was satisfied long ago.
• Multiple conversions in different years each have their own Rule 2 clock, tracked in order of oldest to newest (FIFO ordering per IRS rules).

For households who complete their first-ever Roth contribution or conversion in their late 50s, the timing of both clocks deserves specific attention.

Legacy Considerations

The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries inheriting accounts after December 31, 2019. The replacement: a hard 10-year rule requiring the inherited account to be fully distributed by December 31 of the tenth year after the original owner's death. For beneficiaries who had already reached their required beginning date, the IRS's July 2024 final regulations require annual distributions in years 1–9 as well.

A traditional IRA left to adult children in their 40s or 50s — often peak earning years — stacks ordinary income on top of existing income, potentially taxing every dollar at 32–37%. The same assets in a Roth pass tax-free for the entire 10-year window.

This asymmetry makes Roth conversions during the owner's lifetime a form of tax leverage for the next generation: pay today at a lower marginal rate to spare heirs from paying tomorrow at a higher one. The calculus is especially clear when:

• Heirs are already in the 32% or higher bracket
• The IRA is a meaningful share of the estate
• The account holder's remaining RMD horizon is short

One alternative worth modeling for charitable-minded clients: a Qualified Charitable Distribution (QCD) of up to $111,000 in 2026 (IRS Rev. Proc. 2025-32) can satisfy RMDs tax-free directly to charity — reducing the balance that would otherwise pass through the taxable 10-year window to heirs.

Frequently Asked Questions

Q: Is there an income limit on Roth conversions?

No. The $100,000 MAGI cap on conversions was repealed in 2010. Any traditional IRA owner, regardless of income, can convert in any amount. Income limits apply only to direct Roth IRA contributions — not to conversions.

Q: When is a Roth conversion a bad idea?

When your current marginal tax rate is at or above your projected future rate; when you would need to pay the conversion tax from the converted funds rather than outside assets; or when your time horizon is short enough that the tax-free compounding benefit cannot materialize. Conversions also increase MAGI, which can trigger or worsen IRMAA surcharges and affect means-tested benefits.

Q: How does IRMAA affect my conversion amount?

IRMAA adds Medicare Part B and Part D premium surcharges based on MAGI two years prior. In 2026, surcharges are calculated on 2024 MAGI. The first tier begins at $109,000 (single) / $218,000 (MFJ). Because IRMAA uses cliff thresholds, a modest over-conversion can trigger several thousand dollars in additional annual premiums. Conversions should be sized with explicit IRMAA modeling, not income-tax brackets alone.

Q: Can I access converted funds right away?

It depends on your age. If you are 59½ or older at the time of distribution, you can withdraw converted principal at any time without penalty. If you are under 59½, the conversion's five-year clock applies — withdrawing principal before five years incurs the 10% early withdrawal penalty. Roth earnings require both age 59½ and satisfaction of the contribution five-year rule.

Q: Why does leaving a Roth to heirs produce better outcomes than a traditional IRA?

Under the SECURE Act's 10-year rule, most non-spouse beneficiaries must drain inherited retirement accounts within a decade. Traditional IRA distributions are fully taxable as ordinary income to the heir. Inherited Roth distributions are tax-free (provided the original account met the five-year rule). If your heirs are in a 32–37% bracket, the difference in after-tax value can be substantial.

The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is an investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.

General educational information, current as of 2026. Not personalized investment, tax, or legal advice — figures and rules change. For guidance specific to your situation, talk to a qualified professional.

Want to see the tax a conversion would add this year? Our Roth Conversion Illustration shows the federal tax bracket by bracket — educational, not a recommendation.