Should I Convert My IRA to a Roth This Year?
The following case study reflects a typical investor considering a Roth Conversion.
We will call him “Hank” – who came into our office with a question that more and more retirees and pre-retirees are asking:
“Should I convert a portion of my IRA to a Roth IRA this year?”
Hank is 62. He plans to retire at 65. He has done well; he’s a disciplined saver, thoughtful investor, with no major financial missteps. Most of his retirement assets sit in a traditional IRA and a 401(k) rolled over years ago. Like many diligent savers, he focused on deferring taxes during his working years.
Now the question had shifted. Instead of asking how to reduce taxes today, he was asking how to reduce taxes for the rest of his life.
The Concern Behind the Question
Hank’s concern wasn’t abstract. It was specific. He had recently run projections showing that at age 73, when Required Minimum Distributions (RMDs) begin, his IRA balance could force him into a higher tax bracket, even if he didn’t need the money. Add Social Security, potential investment income, and possible Medicare premium surcharges (IRMAA), and the picture became clearer:
The tax bill later could be larger than the tax bill today. That’s often where the Roth conversion conversation begins. A Roth conversion means moving money from a traditional IRA into a Roth IRA. The amount converted is taxed as ordinary income in the year of conversion, but future growth is tax-free, and Roth accounts are not subject to RMDs during the owner’s lifetime.
It sounds simple. But the decision rarely is.
The First Step: Modeling the Future
Rather than jump to an answer, we built a multi-year tax projection for Hank.
We asked:
- What will his income look like between retirement and age 73?
- What tax brackets is he likely to fall into later?
- What happens if tax rates increase?
- How large will his RMDs be?
- What are the implications for Medicare premiums?
- What we discovered was something many retirees face: a “tax valley.”
Between age 65 and 73, David’s income would temporarily drop. He would no longer be earning a salary. Social Security would not begin until 70. RMDs would not start until 73.
That window…roughly eight years…presented an opportunity.
During those years, he could convert portions of his IRA at relatively moderate tax rates rather than waiting for forced distributions later.
But There Was a Catch
The math favored a Roth conversion. Emotionally, David hesitated. Writing a large check to the IRS this year felt painful, even if it meant potentially reducing taxes over the next 25 years.
That reaction is common. Paying tax voluntarily feels counterintuitive. So we reframed the conversation. Instead of asking, “Should I pay taxes this year?” we asked:
“Would you rather pay taxes at today’s known rates…or at unknown future rates?”
We also looked at legacy implications. Hank intends to leave a portion of his assets to his children. Under current rules, inherited traditional IRAs must be distributed within 10 years, potentially at high tax rates for heirs in peak earning years.
A Roth IRA, by contrast, could provide tax-free distributions to his beneficiaries. That shifted the discussion from short-term discomfort to long-term strategy.
How We Structured the Conversion
We did not convert the entire IRA. Instead, we implemented a staged strategy.
Each year, we calculated how much could be converted while “filling up” his current tax bracket without spilling into the next bracket unnecessarily. We coordinated with his CPA to ensure precise withholding and to avoid unintended Medicare premium increases two years down the road.
The strategy focused on:
- Converting enough to stay within his desired marginal tax bracket
- Preserving flexibility year-to-year
- Monitoring legislative changes
- Maintaining appropriate portfolio allocation after conversion
This wasn’t a one-time decision. It became part of an ongoing tax-aware retirement income plan.
When Does a Roth Conversion Make Sense?
David’s case is not universal. A Roth conversion can be beneficial, but only in certain circumstances.
It often makes sense when:
- You expect to be in a higher tax bracket later
- You are in a temporary low-income period
- You want to reduce future RMDs
- You are concerned about rising tax rates
- You plan to leave assets to heirs
- You can pay the tax bill from outside the IRA
It may not make sense if:
- You need the converted funds soon
- You are already in a high tax bracket
- You cannot pay the tax without using IRA assets
- Your future tax rate will likely be lower
Every case requires modeling. Assumptions matter.
The Outcome
After running multiple scenarios, Hank decided to begin a multi-year partial IRA to Roth IRA conversion strategy. He understood the trade-off. He accepted the near-term tax cost in exchange for:
- Lower projected RMDs
- Greater retirement income flexibility
- Reduced long-term tax uncertainty
- More efficient wealth transfer planning
Six months later, markets fluctuated, as they do. But the tax plan remained intact. His confidence came not from market direction, but from knowing there was structure behind the decision.
That’s the real value of planning.
So… Should You Convert a portion of Your IRA to a Roth IRA This Year?
The honest answer is: it depends.
It depends on:
- Your current tax bracket
- Your projected future tax bracket
- Your age and retirement timeline
- Your estate goals
- Your ability to pay conversion taxes
- Legislative risk
- Medicare implications
A Roth conversion is not a product decision. It’s a tax strategy decision. For some retirees, it meaningfully improves long-term outcomes. For others, it creates unnecessary tax acceleration.
The key is analysis…not headlines, not fear of rising taxes, not blanket advice.
For Hank, this year was the right year to begin. For you, the right answer starts with modeling your numbers, not guessing.
If you’re asking the question, it may be worth running the projections.
This case study above is hypothetical and based on a combination of real-world situations. It is not intended to represent any specific individual.