Many people understand they should save for retirement — but they don't always know the most tax-efficient way to do it. A Roth conversion is one of the most powerful strategies available to reduce your future tax burden — but timing and circumstances matter enormously.

Below is a practical Q&A guide to help you understand what a Roth conversion is, who it makes sense for, and when to consider acting.

Q: What is a Roth conversion?

A Roth conversion is the process of moving money from a traditional IRA (or other pre-tax retirement account) into a Roth IRA. When you do this, you pay income taxes on the amount converted in the year of conversion — but from that point forward, the money grows tax-free and qualified withdrawals in retirement are completely tax-free.

Think of it as paying your tax bill now, in exchange for never paying taxes on that money again.

Q: How is a Roth IRA different from a traditional IRA?

The key difference is when you pay taxes:

• Traditional IRA: Contributions may be tax-deductible now; withdrawals in retirement are taxed as ordinary income
• Roth IRA: Contributions are made with after-tax dollars; qualified withdrawals in retirement are tax-free
• Roth IRA: No required minimum distributions (RMDs) during the owner's lifetime

For many clients, the question is not whether a Roth is better — but whether converting now makes financial sense given their current and projected future tax rates.

Q: Why would someone do a Roth conversion instead of just contributing to a Roth IRA?

High-income earners are often ineligible to contribute directly to a Roth IRA due to IRS income limits. In 2025, single filers with income above $161,000 and married couples above $240,000 cannot make direct Roth IRA contributions.

However, there is no income limit on Roth conversions. Anyone with a traditional IRA can convert — regardless of income. This makes conversion one of the only Roth strategies available to high earners.

Additionally, if you have years of pre-tax retirement savings built up, a conversion gives you the opportunity to reposition those dollars into a tax-free environment over time.

Q: When does a Roth conversion make the most sense?

Conversions are most advantageous when one or more of the following are true:

• You are in a lower tax bracket than you expect to be in retirement — for example, in an early retirement gap year before Social Security or RMDs begin
• You believe tax rates will be higher in the future — either for you personally or broadly due to potential legislation
• You have a down market year where your account balance is temporarily lower, meaning less taxable income to convert the same number of shares
• You want to reduce future RMDs, which begin at age 73 and are taxed as ordinary income
• You want to leave tax-free assets to heirs, since inherited Roth IRAs can continue to grow tax-free

Q: What is the biggest risk of doing a Roth conversion?

The primary risk is converting at the wrong tax rate — specifically, paying taxes now at a higher rate than you would have paid in retirement. This can happen if:

• You convert too much in a single year and push yourself into a higher bracket
• Your income in retirement turns out to be lower than expected
• You end up needing the money before age 59½, triggering a 10% early withdrawal penalty on converted amounts held less than five years

This is why the amount and timing of a conversion must be carefully calculated — not done arbitrarily.

Q: How much should I convert each year?

There is no universal answer — the right amount depends on your specific tax situation. A common approach is to convert just enough to "fill up" your current tax bracket without spilling into the next one. For example, if you are in the 22% bracket and have room before reaching the 24% threshold, you might convert up to that boundary each year. This is called a bracket-filling strategy.

Other factors that affect how much to convert include:

• Whether you can pay the tax on the conversion from outside funds (not the IRA itself) — this dramatically improves the math
• The impact on Medicare premiums (IRMAA surcharges apply two years after your income spike)
• Whether you have charitable deductions, business losses, or other offsets that create a low-tax window

Q: What happens to my Medicare premiums if I convert?

This is one of the most commonly overlooked consequences. Medicare Part B and Part D premiums are income-tested through a system called IRMAA (Income-Related Monthly Adjustment Amount). If your income — including Roth conversion income — exceeds certain thresholds, your Medicare premiums rise substantially.

The IRMAA lookback is two years, meaning a large conversion in 2025 could increase your 2027 Medicare premiums. This does not make conversions inadvisable, but it does need to be factored into the cost-benefit analysis.

Q: Is there a deadline for doing a Roth conversion?

Yes. Roth conversions must be completed by December 31 of the tax year in which you want them counted. Unlike IRA contributions, which can be made until the tax filing deadline in April, a conversion that happens on January 2 counts for the following year.

This means planning ahead matters — ideally revisiting the conversion question each fall as you have clarity on your annual income.

Q: Can I undo a Roth conversion if I change my mind?

No. As of 2018, the IRS eliminated the ability to "recharacterize" (reverse) a Roth conversion. Once a conversion is processed, it is permanent. This makes it especially important to be thoughtful before converting large amounts — particularly late in the year when you may not yet have full clarity on your total annual income.

Q: How does a Roth conversion affect my estate plan?

Roth IRAs can be a powerful tool for wealth transfer. Here is why:

• Roth IRA assets pass to heirs income-tax free
• Heirs who inherit a Roth IRA under the current SECURE 2.0 rules have 10 years to withdraw the funds — but those withdrawals are still tax-free
• Unlike traditional IRAs, you never have to take RMDs from your own Roth IRA during your lifetime, allowing it to compound longer

For clients who do not need their IRA assets for their own retirement income, a Roth conversion can be one of the most effective wealth transfer strategies available.

Q: What is the biggest mistake people make with Roth conversions?

Converting too much, too fast — without modeling the tax impact. It is easy to assume that "tax-free growth" is always better and convert aggressively. But if you convert at a 32% rate today and would have withdrawn at a 22% rate in retirement, you have actually made yourself worse off.

The goal is not to avoid taxes entirely. The goal is to pay the right amount of taxes at the right time — with a strategy that looks across your entire financial picture.

Conclusion

A Roth conversion can be one of the smartest moves a pre-retiree or high-income earner can make — but only when it is done strategically and at the right time. The opportunity windows are often predictable: a gap year between employment and Social Security, a market downturn, or a year with unusual deductions.

Used well, a Roth conversion is not just a tax move. It is a long-term planning decision that can improve retirement income flexibility, reduce RMD exposure, and create a meaningful tax-free inheritance for the people you care about.

Next Step Recommendations

1. Run a multi-year tax projection

• Model your expected income in retirement including Social Security, RMDs, pension, and investment income
• Compare your current marginal rate to your projected retirement rate

2. Identify your conversion window

• Determine if there are low-income years coming — retirement transition, business slowdown, or large deductions
• Calculate how much room exists in your current bracket before the next threshold

3. Coordinate with your tax professional

• Factor in IRMAA exposure, state tax implications, and charitable giving plans
• Time the conversion to align with year-end income clarity

4. Review your estate and beneficiary strategy

• Determine whether Roth assets should be prioritized for heirs versus used for your own retirement income
• Ensure beneficiary designations are current and aligned with your overall estate plan

Securities and Investment Advisory Services are offered through Osaic Wealth, Inc., member FINRA/SIPC. Osaic Wealth does not offer tax or legal advice. This content is for informational purposes only and does not constitute tax or legal advice. Please consult a qualified tax professional before making conversion decisions.