Roth conversions — moving money from a traditional IRA or 401(k) into a Roth IRA — are one of the most powerful tools in tax planning. You pay income tax on the converted amount today, but the money then grows and is withdrawn tax-free in retirement. The question is never whether Roth conversions are good — it is whether they are good for you, this year, in this amount.
Why 2026 Is a Pivotal Year
The Tax Cuts and Jobs Act of 2017 reduced individual income tax rates across all brackets. Those lower rates are currently scheduled to sunset after December 31, 2025, meaning 2026 tax rates could revert to pre-2018 levels. For many taxpayers, this means the 22% bracket becomes 25%, the 24% bracket becomes 28%, and the 32% bracket becomes 33%.
If you have been deferring Roth conversions, the window of historically low rates may be closing. Converting at a 24% rate in 2025 versus a potential 28% rate in 2027 saves $4,000 in tax on every $100,000 converted. Over a multi-year conversion strategy, this adds up quickly.
When Roth Conversions Make Sense
Roth conversions tend to be most valuable in these situations:
- Early retirement (before Social Security and RMDs) — Your income is temporarily low, creating a window to convert at low tax rates
- Down market years — Converting depressed assets means paying tax on a lower amount, with the recovery happening inside the Roth
- Large traditional IRA balances — Without conversions, required minimum distributions at age 73+ can push you into higher tax brackets and increase Medicare premiums (IRMAA)
- Estate planning — Roth IRAs have no RMDs for the original owner, and beneficiaries receive tax-free distributions (though the 10-year rule still applies under the SECURE Act)
How to Determine the Right Amount
The optimal conversion amount depends on your current marginal tax rate, your projected future tax rate, your cash flow needs, and your ability to pay the tax from non-IRA assets. Converting too much in a single year can push you into a higher bracket, trigger IRMAA surcharges, or create an unnecessarily large tax bill. Converting too little leaves money on the table.
We model conversion scenarios across multiple years, projecting the impact on your taxes, Medicare premiums, estate, and long-term wealth. The goal is to find the "sweet spot" — converting enough to fill the current bracket without spilling into the next one, repeated each year until the opportunity diminishes.
Important Considerations
Roth conversions are irrevocable — you cannot undo a conversion after the fact (recharacterization of conversions was eliminated by the Tax Cuts and Jobs Act). Pay the tax from non-retirement assets when possible; using IRA funds to pay the tax bill reduces the benefit significantly. And always coordinate conversions with your CPA to ensure estimated tax payments are adjusted appropriately.
This article is for educational purposes only and does not constitute tax advice. Consult your tax professional before executing a Roth conversion strategy.