When to Convert a Traditional IRA to a Roth: Key Considerations

Quick overview

Converting a Traditional IRA to a Roth IRA creates current taxable income in exchange for tax-free growth and withdrawals later. Because the tax hit is immediate, the decision hinges on your current tax rate versus your expected tax rate in retirement, the time horizon for tax-free growth, cash available to pay conversion taxes, and other factors like Medicare premiums (IRMAA) and estate plans (see IRS Pub. 590-A and 590-B) (IRS.gov).

This guide walks through the key triggers, math, common strategies, and pitfalls I see in practice so you can decide whether a conversion makes sense for you.

Why conversions matter (short list)

• Locks in today’s tax rate on the converted dollars. If you expect higher rates later, a conversion can save taxes long term.
• Roth IRAs grow and distribute tax-free (if qualified) and have no lifetime RMDs for the original owner (IRS Pub. 590-B).
• Conversions give flexibility in retirement income planning — you can draw from tax-free buckets to manage taxable income and Medicare/SS taxation.

When converting often makes sense

1. Low-income years

• If your taxable income is unusually low (job loss, sabbatical, business startup loss, early retirement before Social Security/pension), converting in that year can let you pay tax at a lower marginal rate.

1. Near-term tax-rate increases expected

• If you reasonably expect higher taxable income or higher tax rates (e.g., sale of a business, large IRA RMDs later, inheritance, or policy changes), convert sooner while rates are lower.

1. Long time horizon

• Younger owners or those many years from withdrawals benefit more because tax-free compounding magnifies the upside.

1. Estate planning

• Roths pass tax-free to beneficiaries (who still must take distributions but may have different tax treatment), which can be useful in estate planning.

1. To eliminate future RMDs

• Converting some or all of a Traditional IRA to Roth removes that portion from RMD calculations; Roth IRAs are not subject to owner RMDs (IRS Pub. 590-B).

When not to convert (or convert cautiously)

• If the conversion pushes you into a much higher tax bracket and you lack cash outside the IRA to pay the tax.
• If you need the converted funds within five years and are under age 59½ — early withdrawals of conversion amounts can trigger penalties due to the conversion 5-year rule (see IRS Pub. 590-A).
• If state income taxes on conversion are materially higher than your expected state tax in retirement.
• If the conversion would trigger higher Medicare Part B/D premiums (IRMAA) or increase taxation of Social Security benefits in the short term (see Medicare.gov and SSA guidance).

Key tax rules to remember (accurate as of 2025)

• Taxable event: A Roth conversion is taxed as ordinary income in the year of conversion on any pre-tax contributions and earnings. There are no income limits on conversions (removed in 2010) (IRS.gov).
• Five-year rule(s): There are two separate 5‑year rules to be aware of. One applies to Roth withdrawals to qualify as tax-free (generally a qualified distribution requires the Roth account to be open for at least five years and the owner to be 59½ or older). The other applies to converted amounts: each conversion has its own 5‑year clock for avoiding the 10% early‑withdrawal penalty on the converted amount if you are under 59½ (IRS Pub. 590-A/B).
• RMDs: Roth IRAs are not subject to lifetime RMDs for the original owner, which can be a strong reason to convert (IRS Pub. 590-B).
• State taxes: Conversions are generally taxable for state income tax purposes in the year of conversion unless your state has special rules.

Practical conversion strategies I use in client planning

1. Partial, multi-year conversions

• Break large balances into multi-year slices to keep each year’s conversion within lower tax brackets. This minimizes bracket creep and IRMAA impacts. See FinHelp’s guide on partial conversions: Pros and Cons of Partial Roth Conversions Over Several Years.

1. Convert in low-income windows

• Examples: gap years between jobs, early retirement before Social Security starts, or a year with deductible losses. I’ve used this with clients who had small business losses one year — converting then locked in a low tax rate.

1. Use withheld or estimated tax payments, not the IRA

• Pay conversion taxes from outside the retirement account so you preserve the full converted amount for tax-free growth and avoid penalties for early withdrawals.

1. Model scenarios

• Run after-tax projections: compare after‑tax value of leaving funds pre-tax vs converting and paying taxes now. Small differences in assumptions (investment returns, tax rates) can flip the recommendation.

1. Consider conversions alongside Roth contribution strategies

• If you can’t contribute to a Roth directly because of income limits, conversions (and backdoor Roth moves) can be part of the plan. Be mindful of the pro‑rata rule if you have non‑Roth pre-tax IRA balances; see FinHelp’s explanation of the Pro-Rata Rule for Backdoor Roth IRA Conversions.

Sample math (simple example)

Scenario: 40-year-old with $100,000 in Traditional IRA and 25 years to retirement. Assume a 6% annual return.

Option A — No conversion: $100,000 grows to ~ $430,000 pre-tax (taxes due on distributions later).

Option B — Convert $25,000 each year for four years, paying tax at 12% each year (tax = $3,000 yearly).

After 25 years, the converted $100,000 would have grown tax-free to roughly the same $430,000; after taxes paid up-front ($12,000 total), the family keeps the full Roth balance tax-free at retirement. If the retiree’s tax rate is higher in retirement (say 22%), the conversion saved significant tax dollars over time.

This simplified example shows the payoff depends on the spread between current and future tax rates and the time horizon.

Checklist: Before you convert

• Estimate current and future marginal tax rates.
• Confirm you have cash outside the IRA to pay the conversion tax.
• Run scenarios for Medicare IRMAA and Social Security taxation impacts.
• Account for state income tax on the conversion.
• If under 59½, understand conversion 5‑year rules and penalty exposure.
• Consider partial/consecutive-year conversions to smooth tax impact.
• Talk to your CPA or tax advisor and update withholding/estimated tax payments to avoid penalties.

Common mistakes I see

• Using IRA funds to pay the conversion tax, which reduces the amount that compounds tax-free and may trigger penalties.
• Doing a large one-time conversion without modeling bracket impact, Medicare premium changes, or the net present value of tax savings.
• Forgetting the conversion 5-year rule and withdrawing converted amounts early.

Related reading

• For a side-by-side look at account choices, read FinHelp’s comparison: Roth IRA vs. Traditional IRA.
• For strategies on partial conversions, read: Pros and Cons of Partial Roth Conversions Over Several Years.

Author’s perspective

In my practice I often recommend partial Roth conversions when clients have predictable near‑term low-income years or when they want to reduce future RMDs for estate flexibility. Conversions are a powerful tool, but they require deliberate tax planning — rushing into a full conversion without modeling can create costly surprises.

Sources and further reading

• IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs): https://www.irs.gov/publications/p590a
• IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/publications/p590b
• Medicare: Part B and Part D costs and IRMAA information: https://www.medicare.gov/your-medicare-costs/part-b-costs
• Consumer Financial Protection Bureau — Retirement planning resources: https://www.consumerfinance.gov/

Professional disclaimer

This article is educational only and does not constitute individual tax, legal, or investment advice. For personalized guidance, consult a qualified tax advisor or financial planner who can model your specific situation.