Roth Conversions: Everything You Need to Know
- Said Israilov
- Jun 21
- 9 min read
Jun 20, 2025 | 7 min read
“Should I do a Roth conversion?” is a question we tend to get a lot from our clients. The short answer? It depends, and a lot of factors come into consideration, including current tax situation, current tax bracket, future tax situation, future projected tax bracket, financial goals, age, filing status, state of residence, projected tax rates due to possible future legislation, and the list goes on. Ultimately, an analysis would need to be done. Where do we start when doing a Roth conversion analysis for our clients? Let’s dive in and review the basics.
Traditional vs. Roth
(You can totally skip this part if you already know the differences.)
The Basics
With traditional retirement accounts, like a Traditional IRA or 401(k), your contributions are "pretax." This means you do not pay income tax on the money you put in for that year. The money grows tax free, and you only pay taxes on it as ordinary income when you withdraw it in retirement. These traditional accounts have what are called Required Minimum Distributions, or RMDs, which are mandatory withdrawals you have to start taking once you turn 72.
Roth accounts, like a Roth IRA or Roth 401(k), work the opposite way. You contribute "after tax" money, meaning you already paid income tax on it, so you don't get a tax deduction in the current year. The money grows completely tax free, and when you take it out in retirement, you do not pay any tax on it at all, as long as it is a qualified distribution.
Interestingly, Roth 401(k)s have required withdrawals, but Roth IRAs do not. To get around this, you can simply roll over the money from a Roth 401(k) into a Roth IRA.
What This Means For You
The Internal Revenue Service (IRS) wants to get its tax money one way or another. It is either at the beginning before the money goes in (Roth) or at the end when the money comes out (traditional).
Because of this, contributing to a Roth account makes more sense when you are younger and your income is lower. The idea is to pay the tax now while you are in a lower tax bracket. When you take the money out later in life, your distributions will be tax free, which is great if you are in a higher tax bracket then. You pay the tax now to get the advantage later, once you hit a break even point where the tax free growth was worth the early tax payment.
On the other hand, contributing to a traditional account might be better when you are older and in a higher tax bracket. Making pretax contributions can help lower your taxable income now.
Speaking of Tax Brackets
With respect to federal income tax brackets, you pay tax as a percentage of your income in layers called tax brackets. As your income goes up, the tax rate on the next layer of income is higher. When your income jumps to a higher tax bracket, you don't pay the higher rate on your entire income. You pay the higher rate only on the part that's in the new tax bracket.
To help you visualize this, the chart below lays out the 2024 federal income tax brackets for both Single and Married filers. You can see the specific income layers and the tax rate that applies to each one.
Source: IRS 2025
Here’s how that works for a single person with taxable income of $125,000 per year:
What is a Roth conversion?
A Roth conversion is when you move money from your traditional IRA into a Roth IRA. The amount you convert gets taxed as ordinary income for the year you do the conversion. In the past, only people with incomes under $100,000 could do this, but since 2010, there has been no income limit. Anyone can do a Roth conversion, no matter their income level.
When Might a Roth Conversion Make Sense for You?
You expect to be in a higher tax bracket in the future. If you believe you are in a lower tax bracket now than you will be later in life, it may make sense to do a Roth conversion. You would be paying tax on that money now at your lower rate. Later on, when you are in a higher bracket, your withdrawals from the Roth IRA would be tax free.
You had an unusually low income year. If your income is lower than normal for some reason, like a job change, a layoff, or taking a sabbatical, a Roth conversion might be a smart move to take advantage of the lower tax rate.
You want to avoid required withdrawals. If you absolutely do not want to be forced to take RMDs when you turn 72, a Roth conversion can be a solution. You would pay the conversion tax now, but you would never be required to withdraw that money from your Roth IRA.
You want to leave tax free money to your heirs. If you want to pass down money from your retirement account, a Roth conversion could be a great strategy. You pay the taxes on the conversion now. Once the money is in the Roth IRA, it should never be taxed again, even when your beneficiaries take it out.
You can pay the conversion tax with other funds. Roth conversions make the most sense if you can pay the extra tax bill with money from your checking or savings account, not from the retirement money itself. If you use the conversion money to pay the tax, you reduce the amount that goes into the Roth IRA, which hurts the future growth potential.
To make this clearer, take a look at the chart below. It maps out a typical career path and shows how your contribution strategy can evolve. As a general rule, you can see it suggests using Roth accounts when your income is lower (the blue area) and then switching to Traditional pretax accounts during your peak earning years (the grey area). This is a simple way to think about tax diversification.
When Might a Roth Conversion Make Sense for You?
You expect to be in a higher tax bracket in the future. If you believe you are in a lower tax bracket now than you will be later in life, it may make sense to do a Roth conversion. You would be paying tax on that money now at your lower rate. Later on, when you are in a higher bracket, your withdrawals from the Roth IRA would be tax free.
You had an unusually low income year. If your income is lower than normal for some reason, like a job change, a layoff, or taking a sabbatical, a Roth conversion might be a smart move to take advantage of the lower tax rate.
You want to avoid required withdrawals. If you absolutely do not want to be forced to take RMDs when you turn 72, a Roth conversion can be a solution. You would pay the conversion tax now, but you would never be required to withdraw that money from your Roth IRA.
You want to leave tax free money to your heirs. If you want to pass down money from your retirement account, a Roth conversion could be a great strategy. You pay the taxes on the conversion now. Once the money is in the Roth IRA, it should never be taxed again, even when your beneficiaries take it out.
You can pay the conversion tax with other funds. Roth conversions make the most sense if you can pay the extra tax bill with money from your checking or savings account, not from the retirement money itself. If you use the conversion money to pay the tax, you reduce the amount that goes into the Roth IRA, which hurts the future growth potential.
To make this clearer, take a look at the chart below. It maps out a typical career path and shows how your contribution strategy can evolve. As a general rule, you can see it suggests using Roth accounts when your income is lower (the blue area) and then switching to Traditional pretax accounts during your peak earning years (the grey area). This is a simple way to think about tax diversification.
Source: J.P.Morgan 2025
When Wouldn't a Roth Conversion Make Sense?
A Roth conversion may not be a good idea if you are already in a high tax bracket and do not want to add more taxable income on top of that. It also might not make sense if you believe you will be in a lower tax bracket in retirement or if you cannot afford to pay the tax liability with your own out of pocket funds.
A Quick Note on the "Pro Rata Rule"
Sometimes, you might have after tax money in your traditional IRA. This happens if your income was too high in a certain year to get a tax deduction for your contribution.
When you do a Roth conversion, the IRS looks at the ratio of your after tax money to the total value of your traditional IRA. That same ratio determines how much of your conversion is taxable. For example, if your traditional IRA is worth $100,000 and $15,000 of it is after tax money (so, 15%), then only 85% of any conversion you do would be taxable.
What About a "Backdoor" Roth?
If your income is too high to contribute directly to a Roth IRA, you can use a strategy called the Backdoor Roth. You contribute to a traditional IRA first, which has no income limits. Since your income is high, this contribution is not deductible. You can then immediately convert that amount to a Roth IRA with no tax consequences.
This only works cleanly if you do not have any other pretax money in a traditional IRA. If you do, that pro rata rule we just mentioned will apply and make the conversion taxable.
How to Analyze a Roth Conversion
This is where working with an advisor can provide real value and clarity. To determine the right move for you, we start by analyzing all the personal factors we have discussed. From there, we use detailed tax planning software to model different outcomes. This allows us to pinpoint a precise strategy, for example, by calculating the exact conversion amount that would fill up your current tax bracket, whether it is 12%, 22%, or 24%.
Most importantly, we can run a long term projection to find your specific break even point. This shows if and when paying the tax now is worth it for you down the road, giving you the confidence to make an informed decision.
As you can see, there is no quick answer to the Roth conversion question. Many factors must be considered. You will want to do a detailed tax projection to understand the immediate impact and possibly a long term projection to see if it makes sense for your future. While there are many moving pieces, taking advantage of Roth conversions can be a very beneficial move in the right situation.
If you would like help running a tax projection for a Roth conversion this year, feel free to reach out.
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