roth conversion Archives

12 Roth Conversion Obstacles That Could Derail Your Retirement Tax Strategy

June 15, 2026

If you’ve been considering a Roth conversion as part of your retirement strategy, you’re likely aware of the potential benefits. However, what many people don’t realize is that there are numerous obstacles that can either completely eliminate your ability to convert to a Roth or significantly reduce your conversion capacity. These Roth conversion obstacles act like landmines in your retirement planning, potentially derailing even the most well-intentioned tax strategies.

After working with countless clients who have multiple seven-figure accounts primarily in tax-deferred vehicles like traditional IRAs and 401(k)s, I’ve identified 12 specific obstacles that can interfere with your Roth IRA conversion plans. Understanding these potential hurdles before you begin your conversion strategy can help you avoid costly mistakes and optimize your retirement tax planning.

Understanding the Roth Conversion Window

Before diving into the specific obstacles, it’s important to understand what we call the “Roth conversion window.” This is the optimal time period when Roth conversion makes the most sense in your retirement plan. Typically, this window opens when you retire and your earned income drops. It closes when required minimum distributions (RMDs) begin at age 73 or 75, depending on your birth year.

During this window, you have the opportunity to fill up lower tax brackets by converting traditional retirement account funds to Roth accounts. However, various income sources and life circumstances can narrow or eliminate this window entirely.

Obstacle #1: Social Security Timing and Your Conversion Strategy

One of the most common obstacles I see is the timing of Social Security benefits. When people retire, there’s often a natural tendency to start claiming Social Security as early as possible. The thinking is understandable. You don’t have a crystal ball to tell you how long you’ll live, and you want to get your money while the getting’s good.

However, Social Security benefits can significantly impact your Roth conversion capacity. While Social Security isn’t entirely taxable, up to 85% of your benefit could be subject to taxation, and this taxable portion gets added to your adjusted gross income. This additional income can push you into higher tax brackets, reducing the amount you can convert at lower tax rates.

The timing of when you claim Social Security matters tremendously. If you claim early or even at full retirement age, you’re adding income that reduces your conversion window. If you delay until age 70 to maximize your benefit, you’ll have a larger conversion window from retirement until 70, but then a much smaller window from 70 until RMDs begin.

This doesn’t mean you should automatically delay Social Security just to do conversions. Your decision should consider your overall financial picture, including withdrawal rates, risk tolerance, sequence-of-returns risk, and life expectancy. The key is understanding how the timing of Social Security directly affects your ability to execute a Roth conversion strategy.

Obstacle #2: Pension Income Reducing Your Conversion Window

Pension income presents another significant obstacle to Roth conversions. Pensions provide excellent guaranteed income to layer on top of Social Security. However, they can dramatically reduce or eliminate your conversion window. Most pensions begin at retirement, whether that’s at 60, 62, or 65, and this income stream immediately fills up your lower tax brackets.

If you’re fortunate enough to have a pension with a lump-sum option, you face an important decision. Taking the lump sum allows you to roll the funds into your own IRA, where they become available for future Roth conversions. However, choosing the lifetime income stream means accepting that income throughout retirement, which reduces your conversion capacity.

Some pensions also offer flexibility in timing. Just like Social Security, you might be able to delay your pension start date, earning delayed retirement credits while creating more room for conversions in the early years of retirement. The key is coordinating the timing of your pension with your overall Roth conversion strategy and Social Security decisions.

Obstacle #3: Spousal Income Affecting Your Roth IRA Conversion Plans

Even if you’re ready to retire, your spouse might still be in their peak earning years and want to continue working. This creates a situation where, despite your retirement, your household may still be in a high tax bracket due to your spouse’s earned income.

Whether your spouse is working full-time or doing part-time consulting, any earned income fills up those lower tax brackets, leaving less room for conversions. This means your Roth conversion window doesn’t necessarily begin when you retire—it begins when both spouses are fully retired.

This obstacle requires careful coordination between spouses. You might need to wait until both of you have stopped earning significant income before implementing an aggressive conversion strategy. Alternatively, you might do smaller conversions while one spouse is still working, then ramp up conversions once both are retired.

Obstacle #4: Business Sale Income and Conversion Timing

For entrepreneurs, selling a business can create a significant obstacle to Roth conversions. While the ideal scenario might be to take a lump-sum payment and walk away, the reality is often more complex. Many business sales involve installment sales, consulting agreements, earnout provisions, or seller financing arrangements.

When business sale income is spread over five or ten years, it can completely eliminate your conversion window during that period. Each year, you’re receiving substantial income from the business sale, filling up your tax brackets and leaving no room for conversions.

The structure of your business sale has long-term implications for your tax strategy. While taking a lump sum might result in a higher tax rate in the year of sale, it clears the way for conversions in subsequent years. Spreading the income over time might seem more tax-efficient initially, but it can prevent you from taking advantage of lower tax brackets for conversion purposes.

Obstacle #5: Non-Qualified Deferred Compensation Plans

Highly compensated employees, executives, and physicians often have access to non-qualified deferred compensation plans. Unlike qualified plans such as 401(k)s, these plans have no limits on compensation amounts, allowing you to defer substantial amounts of income.

The challenge comes with the distribution elections you must make when contributing to these plans. You typically need to elect how you want the funds distributed in retirement when you make the contribution. For example, you might elect to receive distributions over five years beginning one year after separation from service.

I recently worked with a client who had elected five-year distributions from their deferred comp plan. This meant they would receive approximately $250,000 per year for five years after retirement. During this period, aggressive Roth conversions were virtually impossible due to the high income from the deferred comp distributions.

The irrevocable nature of many of these elections makes planning crucial. You need to think through how these future distributions will impact your conversion window and coordinate them with other retirement income sources. Some plans allow one-time election changes, but the rules vary significantly between plans.

Obstacle #6: Having All Assets in Tax-Deferred Accounts

When all your assets are in tax-deferred accounts, Roth conversions become less attractive from a cash flow perspective. Ideally, when you convert $100,000 from a traditional IRA to a Roth IRA, you want that full $100,000 to remain invested and growing tax-free. To achieve this, you need to pay the taxes on the conversion from other sources, such as a brokerage account or a high-yield savings account.

However, many people don’t have substantial after-tax funds available. If you have to pay the conversion taxes directly from the IRA being converted, the strategy becomes less compelling. You’re essentially reducing the amount that gets converted and continues growing tax-free.

This doesn’t necessarily eliminate conversions as a strategy, especially if legacy planning is important to you. Even paying taxes from the IRA itself can make sense in certain situations. However, it does create a hurdle that makes conversions less optimal than they could be with better tax diversification.

Obstacle #7: Retiring Too Late and the “One More Year” Syndrome

Many successful professionals fall into what I call the “one more year” syndrome. They’re at the peak of their earning power, they’ve mastered their craft, and the work feels relatively effortless because of their expertise. It becomes tempting to work just one more year for one more bonus, one more year of deferrals, one more year of high income.

However, each year you delay retirement, your conversion window becomes smaller. If you were born between 1951 and 1959, your RMDs begin at age 73. If you retire at 70, you only have a three-year window for conversions. For those born in 1960 or later, RMDs begin at 75, providing a slightly larger window.

Early retirement isn’t just a lifestyle advantage—it’s also a significant tax planning opportunity. The earlier you retire, the longer your conversion window and the more you can spread conversions over multiple years at lower tax rates, rather than trying to do large conversions in a compressed timeframe.

Obstacle #8: The IRMAA Surcharge Impact

IRMAA (Income-Related Monthly Adjustment Amount) represents a hidden tax on Roth conversions for Medicare beneficiaries. This surcharge increases your Medicare Part B and Part D premiums based on your modified adjusted gross income from two years prior.

When you’re trying to maximize conversions within a specific tax bracket, IRMAA can significantly increase the effective tax rate on those conversions. For example, if you’re filling up the 22% tax bracket but trigger the first IRMAA tier, your effective tax rate on those conversion dollars becomes much higher than 22%.

While you shouldn’t let IRMAA completely derail your conversion strategy, you need to factor these additional costs into your calculations. Sometimes triggering IRMAA for a few years during your conversion window still makes sense for long-term tax optimization, but you should understand the full cost of your conversion strategy.

Obstacle #9: Tax-Inefficient Investment Positioning

The way you position your investments across different account types can significantly impact your conversion capacity. Asset location—where you hold specific investments—is just as important as asset allocation for tax planning purposes.

For example, if you hold tax-inefficient investments in taxable accounts, they generate additional taxable income that reduces your conversion room. I’ve worked with clients whose legacy mutual funds generated substantial phantom capital gains each year, even without selling anything. These capital gains get added to adjusted gross income, filling up tax brackets that could otherwise be used for conversions.

Similarly, holding large cash positions in high-yield savings accounts generates interest income that impacts conversion capacity. If you have $1 million earning 4% in cash, that’s $40,000 of additional income that impacts your overall tax situation.

The solution involves strategic asset location: holding tax-inefficient investments in tax-deferred or tax-free accounts while keeping tax-efficient investments in taxable accounts. This positioning can free up significant room for conversions.

Obstacle #10: Inheritance Timing and the 10-Year Rule

Inheriting retirement accounts can completely disrupt your conversion plans due to the 10-year rule that eliminated stretch IRAs for most beneficiaries. If you inherit a traditional IRA, you must fully liquidate the account by the end of the 10th year after the original owner’s death.

For example, if you inherit a $1 million traditional IRA and the original owner was already taking required distributions, you must continue taking at least those minimum distributions each year, then fully liquidate the account by year 10. This creates substantial additional income during what might otherwise be your optimal conversion window.

The timing of inheritances is obviously beyond your control, but understanding the potential impact helps with planning. You might need to adjust your conversion strategy based on inherited account distributions, or time withdrawals from inherited accounts strategically to preserve some conversion capacity in later years.

Obstacle #11: ACA Premium Tax Credits and Early Retirement

If you retire before age 65 and rely on Affordable Care Act marketplace insurance, premium tax credits can significantly impact your conversion strategy. For 2026, the income cliff returns, meaning if your income exceeds 400% of the federal poverty line (about $86k/year for married couples) you lose all premium tax credits.

These premium tax credits can be worth $2,000-$3,000 or more per month, making them extremely valuable. In many cases, the value of maximizing these credits exceeds the long-term tax savings from aggressive conversions. This creates a situation where you might want to keep income low to maximize credits before age 65, then increase Roth conversions once you’re eligible for Medicare.

Obstacle #12: The Senior Bonus Deduction

The Senior Bonus Deduction, introduced through recent legislation, provides up to $6,000 in additional deductions for individuals turning 65 between 2025 and 2028 ($12,000 for married couples where both spouses qualify). This deduction phases out based on income levels, with a complete phase-out at $175,000 for singles and $250,000 for married couples.

While this is a deduction rather than a credit, it still represents a tax benefit that you might lose by doing aggressive conversions during the eligible years. The cost of losing this deduction should be factored into your conversion calculations, though it shouldn’t necessarily prevent conversions altogether.

Planning Around These Roth Conversion Obstacles

Understanding these obstacles is the first step in developing an effective conversion strategy. The key is comprehensive planning that considers all potential income sources and their timing. This includes Social Security optimization, pension timing decisions, spousal income coordination, and strategic asset location.

Building tax diversification early in your career creates more flexibility for conversions later. Having after-tax funds available to pay conversion taxes makes the strategy more attractive. Understanding your specific conversion window based on your birth year and retirement timing helps you plan the optimal conversion schedule.

Most importantly, remember that Roth conversions should be evaluated as part of your overall retirement strategy, not in isolation. The obstacles we’ve discussed don’t necessarily eliminate conversions as a strategy. Still, they do require careful planning and coordination to navigate successfully.

If you’re approaching retirement with substantial tax-deferred accounts, working with a qualified financial advisor who specializes in retirement tax planning can help you identify and navigate these potential obstacles while optimizing your overall retirement income strategy.

At Imagine Financial Security, we help individuals over 50 who have at least $1 million saved navigate these complex retirement decisions. If you are looking to

Maximize your retirement spending
Minimize your lifetime tax bill
Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

retirement tax strategy roth conversion roth conversion obstacles roth conversion tax traps tax strategy taxes in retirement

Kevin Lao

June 18, 2026

7 Compelling Reasons for Roth Conversions

June 4, 2026

Many people spend decades building the largest possible retirement account, only to discover they’re facing significant tax challenges in retirement. If you’ve saved north of seven figures and are approaching or already in retirement, you might be wondering whether Roth conversions make sense for your situation.

The truth is, Roth conversions aren’t the magic solution that some financial media personalities make them out to be. However, there are specific situations where converting your traditional IRAs or 401(k)s to Roth accounts can provide substantial benefits. More importantly, there’s a limited window of opportunity to make these conversions work in your favor.

In this guide, we’ll explore:

Seven compelling reasons you might consider Roth conversions
When these conversions make the most sense
The critical timing window you need to understand.

Whether you’re just entering retirement or planning for the future, understanding these strategies can help you minimize your lifetime tax bill and maximize your retirement security.

What is a Roth conversion?

What is a Roth conversion? Simply put, it’s the process of moving assets from a pre-tax IRA or tax-deferred account, like a 401(k), to a Roth account. This transfer involves converting funds from accounts where you haven’t paid taxes yet into accounts where future growth and withdrawals can become tax-free.

How Does It Work?

When you convert to Roth, you’re essentially paying taxes today on the converted amount in exchange for tax-free growth and distributions in the future. For example, if you have $1 million in a traditional 401(k) and decide to convert the entire amount, you’ll pay income taxes on that full million dollars in the year you make the conversion.

Most people don’t convert everything at once because doing so would push them into the highest tax brackets. Instead, they might spread the conversion over several years. Using our million-dollar example, you might convert $100,000 annually over ten years, paying taxes on $100,000 each year rather than the full amount at once.

The essential question becomes: Does it make sense to pay these taxes now to potentially save on taxes later? The answer depends on several factors we’ll explore in the seven reasons below.

The Key Benefits of Roth Conversion for Your Retirement

Before diving into specific scenarios, it’s important to understand that Roth conversions offer several fundamental advantages. These benefits include

Eliminating future required minimum distributions
Creating tax diversification
Potentially leaving a more tax-efficient legacy for your beneficiaries.

However, these benefits come with a cost. You must pay taxes on the converted amount in the year of conversion. This means you’re paying taxes you wouldn’t otherwise owe until you reach the required minimum distribution age. The strategy only makes sense when the long-term benefits outweigh these immediate tax costs.

Reason #1: Convert to Roth to Reduce Future RMDs

The most compelling reason for many people to convert to a Roth is to reduce future required minimum distributions (RMDs). Once you reach age 73 or 75 (depending on your birth year), you must start taking distributions from your traditional retirement accounts, whether you need the money or not.

These RMDs can create what’s known as the “tax trap” of traditional retirement accounts. You’re forced to take these distributions, even if you have other income sources covering your needs, such as:

Social Security
Pensions
Taxable investment accounts

The problem compounds because RMDs increase each year as your life expectancy shortens.

Example

Consider a couple who have worked with me for nearly a decade. Both have pensions (one military, one teaching). Both are collecting Social Security and have enough guaranteed income to cover all their expenses. In fact, they were reinvesting excess income into their taxable accounts because they didn’t need it. When they reached RMD age, they suddenly had six figures of additional taxable income they had zero need for.

How RMDs Can Affect Your Retirement

Unwanted RMDs can affect you in several ways. They can

Push you into higher tax brackets
Trigger Medicare surcharges (IRMAA)
Make more of your Social Security taxable
Activate net investment income taxes on your other investments.

All of these consequences add unnecessary taxes to your retirement years.

By converting to Roth during your early retirement years, you can significantly reduce the size of your traditional accounts, thereby reducing future RMDs. Since Roth accounts have no RMDs during your lifetime, this strategy can help you maintain better control over your taxable income in later retirement.

Reason #2: Create Tax Diversification in Retirement

Having all your retirement savings in tax-deferred accounts creates a significant limitation. Every dollar you withdraw gets taxed as ordinary income. This lack of tax diversification can be problematic when you face unexpected expenses or opportunities.

Imagine you need a larger distribution for a new roof, unexpected medical expenses, or to help an adult child. If all your money is in traditional retirement accounts, you’ll pay income taxes on the entire withdrawal. Depending on your tax bracket, you might need to withdraw 20% or more to net the cash flow you need.

Tax diversification through Roth conversions gives you more flexibility. With money in Roth accounts, taxable brokerage accounts, and traditional retirement accounts, you can choose which “bucket” to draw from based on your current tax situation. This flexibility becomes especially valuable when managing your income to stay within certain tax brackets or avoid triggering other tax consequences.

For example, if you’re trying to keep your income low enough to qualify for Affordable Care Act premium tax credits before age 65, having tax-free Roth money available for large expenses can help you maintain those valuable subsidies.

Reason #3: Hedge Against Future Tax Increases

While no one can predict future tax policy with certainty, there are reasons to believe tax rates could increase over time. The country faces nearly $40 trillion in debt, an aging population, rising healthcare costs, and increasing interest on government borrowing.

The Tax Cuts and Jobs Act, which lowered Federal tax brackets, was recently made permanent through the One Big Beautiful Bill Act of 2025. However, future Congresses could still change tax policy, and the federal government’s financial challenges aren’t disappearing.

If you believe tax rates might be higher in the future, paying taxes today through Roth conversions could be advantageous. This strategy essentially locks in today’s tax rates on the converted amounts. Even if you’re not certain about future tax increases, having some assets in tax-free accounts provides a hedge against this uncertainty.

The key is not to convert everything based on fear of tax increases, but to consider this possibility as part of a balanced approach to tax diversification.

Reason #4: Protect Your Spouse from Higher Tax Rates

One of the most overlooked benefits of Roth conversions is protecting a surviving spouse from what’s often called the “surviving spouse tax penalty.” This issue affects married couples where one spouse is likely to outlive the other by several years.

When one spouse dies, the surviving spouse faces a significant tax challenge. They lose the benefit of married-filing-jointly tax brackets, which are roughly double those for single filers. However, they may still have the same retirement account balances generating RMDs, and their living expenses might not decrease proportionally.

Example

If a couple was taking $50,000 in RMDs while filing jointly, the surviving spouse might still need to take similar distributions but would now face the compressed single-filer tax brackets. This can push them into much higher marginal tax rates than they experienced as a married couple.

This situation is particularly relevant if there’s an age gap between spouses or if family health history suggests one spouse might outlive the other by many years. By converting some assets to Roth during the years when both spouses are alive and can file jointly, you can reduce the traditional account balances that will generate taxable RMDs for the surviving spouse.

Reason #5: Take Advantage of Market Downturns

Market volatility can create opportunities for more efficient Roth conversions. When your account values drop during market corrections or bear markets, you can convert the same number of shares for fewer tax dollars.

For instance, if you own 100 shares of a stock worth $10 per share ($1,000 total), but the price drops 10% to $9 per share, you can now convert those same 100 shares for only $900 in taxable income instead of $1,000. Or, you could convert more shares with the same Roth conversion amount. If the investment recovers, those shares will grow tax-free in the Roth account.

This isn’t about trying to time the market perfectly, but rather taking advantage of opportunities when they present themselves. If you’re already considering Roth conversions and the market experiences a significant downturn, it might be an opportune time to execute your conversion strategy.

The key is to have a conversion plan in place so you can act when these opportunities arise, rather than making conversion decisions based solely on market movements.

Reason #6: Limited Charitable Giving Plans

If charitable giving isn’t a major priority in your retirement plans, this can support the case for Roth conversions. Here’s why: one of the most tax-efficient strategies for people with large traditional retirement accounts is using Qualified Charitable Distributions (QCDs) starting at age 70½.

QCDs allow you to give money directly from your traditional IRA to qualified charities, and these distributions count toward your RMD requirement without being taxable to you. For someone already giving $10,000 annually to charity, QCDs can effectively reduce their taxable RMD dollar-for-dollar.

However, if you’re not charitably inclined or don’t plan to make significant charitable contributions, you won’t benefit from this strategy. In this case, Roth conversions become more attractive because you won’t have the QCD option to help manage your future RMD tax burden.

This doesn’t mean you should convert to Roth just because you don’t give to charity, but it can be an additional factor supporting conversion if you’re already considering it for other reasons.

Reason #7: Make Your Legacy More Tax-Efficient

Perhaps the most compelling reason for Roth conversions is creating a more tax-efficient inheritance for your beneficiaries. This has become increasingly important since the passage of the SECURE Act in 2019, which eliminated the “stretch IRA” for most beneficiaries.

Under the old rules, if you left a traditional IRA to your adult children, they could take distributions over their own life expectancy, potentially stretching the tax deferral for decades. Now, most beneficiaries must empty inherited retirement accounts within 10 years, significantly accelerating the tax burden.

Consider leaving a $3 million traditional IRA to an adult child who’s a high earner—perhaps a physician, attorney, or business owner already in the top tax bracket. Under the 10-year rule, they’ll need to add roughly $300,000 to their taxable income each year to fully distribute the account. This could result in hundreds of thousands of dollars in additional taxes.

In contrast, if you leave that same $3 million in a Roth IRA, your beneficiary still faces the 10-year rule, but they can let the money grow tax-free for the entire 10 years and then withdraw it all tax-free in year 10. The tax arbitrage can be substantial, especially if your beneficiaries are in their peak earning years when they inherit.

This strategy does require some educated guessing about your beneficiaries’ future tax situations, but if you expect them to be high earners when they inherit, the case for Roth conversions becomes very compelling.

When Should You Convert an IRA to Roth: The Conversion Window

Understanding when to convert an IRA to a Roth is crucial for maximizing the strategy’s benefits. The optimal time for most people is during the “Roth conversion window”—the period between retirement and the start of RMDs.

This window typically starts when you fully retire (or when the higher-earning spouse retires) and your employment income drops to zero or near zero. It ends when you reach RMD age, which is 73 or 75 for most people, depending on your birth year.

For someone who retires at 60 with an RMD age of 75, this creates a 15-year conversion window. During these years, your income might consist only of investment dividends, interest, and capital gains distributions—potentially putting you in much lower tax brackets than during your working years.

However, the conversion window has different phases with varying considerations:

Ages 60-65 (Pre-Medicare)

During this period, you’ll likely need health insurance from the healthcare exchanges, and you might qualify for valuable premium tax credits under the Affordable Care Act. Large Roth conversions could reduce or eliminate these credits, so conversions need to be carefully planned during this phase.

Ages 65-75 (Post-Medicare, Pre-RMD)

This is often the sweet spot for Roth conversions. You’re on Medicare, so you don’t have to worry about losing ACA premium credits. While large conversions might trigger Medicare surcharges (IRMAA), these costs are typically much less than the potential savings from reduced future RMDs.

The key is to use this window strategically. You might convert enough each year to “fill up” lower tax brackets—perhaps converting enough to reach the top of the 12% or 22% bracket, depending on your situation.

Understanding the Rules for Converting to a Roth IRA

The rules for converting to a Roth IRA are relatively straightforward, but there are important details to understand. Unlike Roth IRA contributions, there are no income limits on conversions—anyone can convert traditional retirement account funds to a Roth IRA, regardless of income level.

The converted amount is added to your taxable income for the year, so timing and amount are crucial considerations. You’ll want to work with your tax professional to understand how the conversion will affect your overall tax situation, including potential impacts on Medicare premiums, Social Security taxation, and other income-based benefits.

One important rule: if you have multiple traditional IRAs with different tax characteristics (some with deductible contributions, some with non-deductible contributions), the IRS requires you to convert proportionally from each account. This is known as the “pro-rata rule” and can complicate conversion strategies for some people.

How to Convert to a Roth IRA: Implementation Considerations

When you’re ready to move forward with how to convert to a Roth IRA, you’ll typically work with your financial institution to execute the conversion. This can often be done as a direct transfer between accounts, avoiding any risk of penalties or missed deadlines.

The most important consideration is having a plan for paying the taxes on the conversion. Ideally, you’ll pay these taxes from sources outside your retirement accounts to maximize the benefit of the conversion. Using retirement account funds to pay conversion taxes reduces the amount that can grow tax-free in the Roth account.

Many people use taxable investment accounts or cash savings to pay conversion taxes, viewing it as an investment in future tax savings. This is where working with a qualified financial planner becomes valuable—they can help you model different conversion scenarios and determine the optimal strategy for your specific situation.

Should I Convert My IRA to a Roth? Making the Decision

This question doesn’t have a one-size-fits-all answer. The decision depends on

Your current tax situation
Expected future tax rates
Retirement income needs
Legacy goals
The specific timing of your retirement

The strategy works best for people who expect to be in similar or higher tax brackets in retirement, have other sources of funds to pay conversion taxes, and have a long enough time horizon for the tax-free growth to offset the upfront tax cost.

It’s also important to remember that Roth conversions are about reducing uncertainty, not eliminating it. You can’t know with certainty what future tax rates will be or exactly what your retirement will look like. But by creating tax diversification through strategic conversions, you give yourself more options and flexibility in retirement.

The Bottom Line on Roth Conversions

Roth conversions can be a powerful tool for the right person in the right situation, but they’re not appropriate for everyone. The seven reasons outlined here provide a framework for evaluating whether conversions make sense for you.

Reducing RMDs
Creating tax diversification
Hedging against tax increases
Protecting a surviving spouse
Taking advantage of market downturns
Limited charitable plans
Creating tax-efficient legacies

The decision to convert requires careful planning and coordination with your overall retirement plan. Consider working with a qualified financial planner who can model different scenarios and determine the optimal approach for your specific situation. The goal isn’t just to minimize taxes, but to create a retirement plan that maximizes your financial security and peace of mind.

At Imagine Financial Security, we help individuals over 50 with at least $1 million saved navigate complex retirement decisions. If you are looking to

Maximize your retirement spending
Minimize your lifetime tax bill
Worry less about money

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

convert ira to roth financial planning retirement planning retirement planning strategies roth conversion roth conversion rules

Kevin Lao

June 4, 2026

8 Roth Conversion Tax Traps to Avoid

December 4, 2025

The One Big Beautiful Bill Act (OBBBA) has fundamentally changed the retirement planning landscape, creating new opportunities and hidden dangers for anyone considering a Roth conversion. While the legislation offers some attractive benefits like increased SALT deductions and new senior tax breaks, it has also created a minefield of potential Roth Conversion Tax Traps that could cost you thousands of dollars if you’re not careful.

Understanding these Roth Conversion Tax Traps can save you thousands in unexpected taxes and help you make smarter decisions about your retirement planning. The most dangerous Roth Conversion Tax Traps often catch even experienced investors off guard, particularly with the complex interactions between OBBBA’s new provisions and existing tax rules.

If you’re considering an IRA Conversion to Roth in this new tax environment, you need to understand exactly what you’re getting into. The stakes are higher than ever, and the margin for error has shrunk considerably. Let’s dive into the eight most critical traps you need to avoid.

Understanding IRA Conversion to Roth Under New Tax Laws

Before we explore the specific traps, it’s essential to understand how the OBBBA has changed the conversion landscape. The timing of your IRA Conversion to Roth can significantly impact your tax bill, especially with the new deductions and rate structures in play.

The legislation permanently extends lower federal income tax rates, which might seem like good news for conversions. However, this stability comes with a catch – the window for optimal conversion strategies has narrowed, and the penalties for mistakes have grown steeper.

Many people rush into an IRA Conversion to Roth without considering all implications, particularly how the new law’s provisions interact with existing tax rules. This rush often leads directly into the first major trap.

Tax Trap #1: The Senior Bonus Deduction

This one is brand-new for 2025, and it’s a big deal for retirees.

If you turn at least 65 in 2025, you’re now eligible for an additional “Senior Bonus Deduction” on top of your standard deduction. After OBBBA, the standard deduction bumps to $31,500 for married filing jointly and $15,750 for singles. You still get the regular senior deduction if 65+ which is $1,600 per spouse for MFJ or $2,000 for singles.

But here’s the bombshell:
The Senior Bonus Deduction adds another $6,000 per qualifying person. For a married couple where both spouses are 65+, that’s $12,000 extra.

So, in theory, a married filing jointly couple, both turning 65 in 2025, can claim up to $46,700 as their standard deduction. No itemizing required. No shoe boxes of receipts. And yes, this is exactly why so few taxpayers itemize, and that trend will likely continue.

Why This Matters for Roth Conversions

That massive deduction means the Roth conversion “window” just got wider. More deductions = more room to realize income before it climbs the tax brackets.

We ran a projection yesterday for a couple we work with who both qualify for the senior bonus deduction. Last year, they converted $51,000 to Roth. This year, if they converted the same $51k, they’d pay $2,000 less in taxes for 2025!

But here’s the trap…
The Senior Bonus Deduction phases out.

Singles: begins phasing out at $75,000 AGI, fully gone by $175,000
MFJ: begins phasing out at $150,000 AGI, fully gone by $250,000

Every dollar above the first threshold reduces your Senior Bonus. Meaning a Roth conversion can unintentionally shrink (or completely eliminate) the very deduction you were planning to rely on.

And remember: this senior bonus deduction is only through 2028, then it’s set to expire.

The Bottom Line

Yes, this new deduction makes it tempting to get aggressive with Roth conversions, but you must weigh each conversion against the potential phaseout of the Senior Bonus Deduction. Big opportunity… but also a sneaky trap if you’re not careful.

How to Avoid this Trap

First, determine how important Roth Conversions are. Then, weigh the cost of those conversions, particularly if you are 65 or older in 2025!

Tax Trap #2: State Income Tax Arbitrage

Many pre-retirees living in high-tax states plan to retire to a low or no-state-income-tax state in the future. Additionally, there might be a period after retirement when you are technically in the “Roth Conversion Window” but still paying state income taxes. Once you move to your new low or no-income tax state, those state income taxes might go down or be eliminated completely. This provides a unique opportunity to perhaps PAUSE or reduce conversions UNTIL you move to that new, more tax-favorable environment. This could save thousands of dollars in state income taxes on those future conversions.

How to Avoid this Trap

Calculate the state tax impact of your conversion before proceeding. Consider the total tax cost (federal plus state) rather than just the federal impact. In some cases, it might make sense to establish residency in a no-tax state before doing large conversions.

Tax Trap #3: Medicare IRMAA Surcharge Surprises

One of the most overlooked Roth Conversion Tax Issues involves Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) surcharges. These surcharges kick in when your modified adjusted gross income exceeds certain thresholds, and Roth conversions count as income for IRMAA purposes.

The IRMAA thresholds for 2025 start at $103,000 for single filers and $206,000 for married couples filing jointly. But here’s what makes this trap particularly nasty – IRMAA is based on your tax return from two years prior. So a large conversion you do in 2025 could increase your Medicare premiums in 2027.

Example:

Let’s say you’re 67 years old and typically have $90,000 in annual income. You decide to do a $50,000 Roth conversion, pushing your income to $140,000. Two years later, you’ll face IRMAA surcharges that could add $2,000 or more to your annual Medicare premiums – and those higher premiums continue until your income drops back down.

The trap gets worse if you do multiple conversions or have other income spikes. Some retirees find themselves paying IRMAA surcharges for years because they didn’t coordinate their conversion timing properly.

These hidden Roth Conversion Tax Consequences could derail your retirement strategy if you’re not prepared for the ongoing premium increases. Understanding proper Roth Conversion Tax Treatment helps optimize your strategy and avoid these costly surprises.

How to Avoid this Trap

Model your income for the next several years, including planned conversions. Consider spreading conversions across multiple years to stay below IRMAA thresholds. If you’re approaching Medicare age, be especially careful about conversion timing in the years before you enroll.

Tax Trap #4: The Social Security Tax Spike

Despite what some headlines have claimed over the last six months, Social Security did not become tax-free after OBBBA. Social Security benefits are still taxable, and the amount that shows up in your taxable income depends entirely on your provisional income. That formula looks like this: your AGI (not including Social Security) + any “tax-free income” like foreign earned income or muni bond interest + 50% of your Social Security benefits. That total becomes your combined income, which determines how much of your Social Security becomes taxable.

So let’s go back to the couple converting $51,000. Before the conversion, their provisional income was low enough that they were paying only a very small tax on their Social Security. But once they converted that $51k, their taxable income jumped by $84,000. Why? Because the higher provisional income triggered the Social Security Tax Torpedo, pulling more of their benefits into taxation.

How to Avoid this Trap

A Roth conversion increases your provisional income, which means (1) you may trigger taxes and (2) each dollar converted can pull more of your Social Security into taxation. You might consider delaying Social Security during this more aggressive Roth Conversion phase in order to maximize the tax efficiency of those conversions. Watch the full YouTube video I posted here: ($51k Roth Conversion Resulted in $84k of taxable income).

Tax Trap #5: Timing Mistakes That Multiply Tax Costs

Timing is everything with Roth conversions, and OBBBA has created new timing considerations that can make or break your strategy. The most common timing mistake is doing conversions during high-income years instead of waiting for lower-income periods.

The new law provides several opportunities for strategic timing, but many people miss them entirely. For example, the senior deduction of $6,000 is only available through 2028. If you’re approaching 65, you have a limited window to take advantage of this deduction while doing conversions.

But here’s the trap – everyone knows about this deadline, which means many people are rushing to convert in the same timeframe, potentially pushing themselves into higher brackets unnecessarily.

Another timing trap involves market conditions. Some people do conversions when their account values are high, paying taxes on inflated asset values. Others wait for market downturns, but then panic and convert at the worst possible time from a tax perspective.

Changes to Roth Conversion Tax Treatment affect conversion timing decisions in ways that aren’t immediately obvious. The interaction between OBBBA’s provisions and your personal tax situation creates unique timing windows that require careful analysis.

How to Avoid this Trap

Create a multi-year conversion plan that takes advantage of low-income years, market downturns, and temporary tax benefits. Don’t rush to convert just because rates are scheduled to increase – make sure the timing works for your specific situation. Consider converting during early retirement years before Social Security and RMDs begin.

Tax Trap #6: ACA Premium Tax Credits

Healthcare is a huge point of stress for early retirees. What do you do before Medicare kicks in? And yes, the ACA premium situation is getting crazy. I just ran my projected 2026 premium assuming the exact same plan… 60%+ increase. Seriously!?

But here’s the real issue for early retirees: the ACA subsidy cliff returns in 2026. From 2021 to 2025, the subsidy was more of a gradual slope. You could earn above 400% of the Federal Poverty Level and still receive a premium tax credit. In 2026, that slope disappears. It’s back to a hard cliff. That means earn $1 over the 400% FPL threshold, and your premium tax credit is gone completely.

So, depending on your situation, this might actually tempt you to do heavier Roth conversions in 2025 while the rules are still flexible. Once 2026 hits, those conversions could cost you thousands in lost subsidies.

How to Avoid this Trap

Be conservative with your income estimates, as this is a tax credit ADVANCE! Yes, you can elect to not receive reduced healthcare premiums and true up your taxes the next filing season, but this might result in you paying thousands of unnecessary dollars for healthcare coverage that you did not need to pay!

Tax Trap #7: Capital Gains Triggers

One of the best features of a taxable brokerage account, or what I like to call a non-qualified account. Unlike a 401(k) or IRA, it has the preferential long-term capital gains treatment when you hold investments for at least a year. Instead of being taxed like ordinary income, your gains fall into one of three brackets: 0%, 15%, or 20%.

Additionally, qualified dividends earned are also taxed at long-term capital gains rates! Not to mention the benefit of the step-up in cost basis at death.

Here’s Where the Trap Comes In:

If your taxable income crosses certain thresholds, it can push your capital gains into a higher bracket, and in some cases, even trigger the Net Investment Income Tax (NIIT)—an extra 3.8% surcharge on top.

That means before a Roth conversion, you might be able to harvest gains at 0% tax. But after the conversion? Suddenly, you’re looking at 15% capital gains, or worse, you’re now over the NIIT threshold and owe an additional 3.8%.

How to Avoid this Trap

Run tax projections on your capital gains before and after a conversion. It might make sense to limit conversions if you are enjoying 0% long-term capital gains treatment.

Tax Trap #8: FOMO

Ok people… Roth conversion FOMO is real. The hype over the last seven-ish years has been nonstop, and it can make you feel like you have to convert your IRA or you’re somehow missing out. But before you panic-convert everything, pause for a second. Think about why a Roth conversion strategy might make sense for you. And just as importantly, why it might not.

In fact, I did an entire episode breaking down “7 reasons NOT to convert your IRA to a Roth,” and it’s worth a listen (click here). Not every tax strategy is universally good, and Roth conversions are no different. The smartest planning comes from knowing when to act and when to pump the brakes.

How to Avoid this Trap

Get out your crystal ball and tell us what your lifetime taxes will be with conversions and without conversions. That’ll give you the answer! In all seriousness, listen to that podcast episode, and you make the call!

New Roth Conversion Tax Treatment Rules: What You Need to Know

Understanding proper Roth Conversion Tax Treatment helps optimize your strategy in the post-OBBBA environment. The new law doesn’t change the basic mechanics of Roth conversions, but it does change the tax environment in which those conversions occur.

The key changes include higher standard deductions, new targeted deductions for seniors and certain types of income, and extended lower tax brackets. These changes create both opportunities and traps, depending on how you navigate them.

The most important principle is that every conversion decision must be evaluated in the context of your complete tax picture, including federal taxes, state taxes, Medicare premiums, and other income sources. The days of simple conversion calculations are over – the new tax environment requires sophisticated planning.

Avoiding These Eight Roth Conversion Tax Traps: Your Action Plan

Avoiding these Roth Conversion Tax Traps requires careful planning and timing, but the effort can save you thousands of dollars and help you build a more tax-efficient retirement strategy. Here’s your action plan:

Never do a large conversion without modeling the complete tax impact, including federal taxes, state taxes, Medicare premiums, and the loss of deductions or credits. The true cost of a conversion is often much higher than the obvious federal income tax.
Consider spreading conversions over multiple years to manage tax brackets and avoid triggering various phase-outs and surcharges. The OBBBA provisions create a window of opportunity through 2028, but that doesn’t mean you should rush to convert everything immediately.
Coordinate your conversion strategy with other aspects of your financial plan, including state residency changes, Social Security claiming strategies, and investment portfolio management. Roth conversions don’t exist in isolation – they affect and are affected by every other aspect of your tax situation.
Keep detailed records and work with qualified professionals who understand the complexities of the new tax law. The interaction between OBBBA provisions and existing tax rules can create scenarios that even experienced taxpayers may miss.
Remember that tax laws change, and what makes sense today might not make sense tomorrow. Build flexibility into your conversion strategy and be prepared to adjust as circumstances change.

Final Thoughts

The One Big Beautiful Bill Act has created both opportunities and dangers for Roth conversion strategies. By understanding and avoiding these eight critical tax traps, you can take advantage of the opportunities while protecting yourself from the dangers. The key is careful planning, thorough analysis, and professional guidance when needed.

Your retirement security depends on making smart decisions about Roth conversions in this new tax environment. Don’t let these traps derail your retirement plans – take the time to understand them and plan accordingly.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

Maximize your retirement spending
Minimize your lifetime tax bill
Worry less about money

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

backdoor roth conversion roth conversion roth conversion tax rules

Kevin Lao

December 4, 2025

6 Reasons to Take Advantage of a Roth Conversion

July 31, 2025

While I recently outlined reasons to steer clear of a Roth conversion, today I’m flipping the coin to explore when it can be a smart, strategic move for your financial future.

Why Consider a Roth Conversion During Market Downturns

A Roth conversion can be particularly beneficial during market downturns. When the market is down, you’re essentially exchanging a number of shares based on the dollar amount you want to convert from your tax-deferred account (whether it’s an IRA or a 401k) into a Roth.

You’ll have to pay taxes now in exchange for tax-free growth, which is the advantage Roth accounts offer. When markets are down, you can convert more shares with the same dollar amount.

For example, if you were looking to convert $50,000 worth of Vanguard’s Total Index (VTI) back in 2022 (the last bear market), you’d be able to convert an additional 25% worth of shares because the market was down roughly 25% that year. Just a thought, given we had some rough patches this April with the tariff concerns. We could continue to see more volatility in the months ahead.

While we can’t control market volatility, we can control smart tax planning. Let’s jump into the top six reasons you may consider a Roth Conversion in your financial planning strategy.

1. For Accumulators: Backdoor Roth IRA Strategy

The first reason is actually for people who are pre-retirement, or what I call “accumulators.” There are income thresholds for single and married filing jointly to directly contribute to a Roth IRA. If you fall into that category, the Roth conversion or backdoor Roth IRA strategy comes into play.

Essentially, you’ll make a non-deductible contribution into an IRA and then convert those assets into a Roth IRA. There are some tax traps you might fall into (the aggregation rule), so consult with your tax planner or financial planner before making this move. This strategy is available for IRAs, and sometimes, for 401ks as well. Contribution limits are much higher for 401ks than IRAs. If you have this option within a 401k, this could really boost your retirement savings.

2. Tax-Free Growth Long-Term

Reasons 2 through 6 are for individuals nearing retirement who have accumulated substantial savings in tax-deferred IRAs or 401ks.

The second reason is for long-term tax-free growth. If you believe tax rates probably aren’t going down and are more likely to go up or stay the same, then tax-free growth and compounding interest are much more powerful than tax-deferred growth. This could be for legislative reasons, or even simply projecting out your lifetime tax brackets. We know now that the One Big Beautiful Bill Act has made the current brackets permanent. Still, that doesn’t mean YOUR tax bracket might rise over time based on changes in your income or assets.

3. Eliminate or Reduce Required Minimum Distributions

A Roth conversion can eliminate or reduce your required minimum distributions. Required Minimum Distributions (RMDs) are mandatory withdrawals from traditional retirement accounts (IRAs, 401ks, 403bs, TSPs, 457bs, etc.) that the IRS requires once you reach a certain age. The beginning age is currently 73 if you were born before 1960, or 75 if you were born in 1960 or later. RMDs could potentially push your income into higher tax brackets later in retirement when spending actually might go down. Furthermore, if you don’t need all that income, it forces you to realize it anyway to avoid the 25% penalty for a missed RMD.

4. Save Money on Medicare Premiums

Many people don’t realize that when you sign up for Medicare, you might find yourself paying MORE for Medicare Part B and D. Part A is free, and everyone has the same base premium for B and D. However, the more money you make in retirement, the chances of triggering an “IRMAA” surcharge goes up.

IRMAA stands for Income-Related Monthly Adjustment Amount. There are 5 different premium tiers, and each tier increases your IRMAA surcharge. You can also look at it like an excise tax. The more you’ve saved in tax-deferred vehicles (401ks and IRAs), the higher those RMDs might be. More income from RMDs means your Medicare premiums may go up.

5. Reduce the “Surviving Spouse’s Tax Penalty”

The likelihood that a married couple passes away in the same year is very low. Most of the time, women outlive men, or one spouse outlives the other by many years. This is especially relevant if there is a significant age gap between spouses.

Filing jointly is much more tax-advantaged for most people. The surviving spouse will have to switch to filing single, typically the year following the initial spouse’s passing. This could result in pushing the surviving spouse into a much higher tax bracket than when they could file jointly.

Taking this into consideration to ensure you’re not placing your surviving spouse in an unfair or unfavorable tax situation upon your passing is a compelling reason to convert assets from traditional to Roth.

6. Address Changes from the SECURE Act

With the SECURE Act going into effect at the end of 2019, we’re seeing the largest acceleration of taxes on retirement assets that we’ve ever experienced. Essentially, the stretch IRA is eliminated for most non-spousal beneficiaries. With the stretch IRA, beneficiaries could “stretch” their IRA withdrawals over THEIR life expectancy. However, the SECURE Act now requires most beneficiaries to liquidate the entire retirement account by the end of the 10th year. This could result in pushing your heirs into an unfavorable tax bracket, especially if they are successful in their own right. We hear all the time that our clients’ children are making more than they ever made! Couple this with large IRAs or 401ks as an inheritance in their peak earning years, and you can see the potential tax trap this brings about. We call it “The Death Tax Trap of 401ks.”

This acceleration of taxes is a big reason to convert from tax-deferred accounts to tax-free accounts. When Roth accounts pass to the next generation, the beneficiaries can enjoy tax-free distributions of the assets instead of tax-deferred distributions.

Understanding the Roth IRA Conversion Process

The concept of a Roth Conversion is essentially to pay the tax now as opposed to deferring those taxes in an IRA or 401k. If you follow the appropriate 5-year rules, everything that grows and compounds in that account, along with the withdrawals, should be tax-free in retirement.

Compare that to a traditional IRA or traditional 401k. These plans give you a tax deduction upfront, but all of that compounding interest and distributions in the back end are taxed as ordinary income in retirement.

Many of my clients over 55 have accumulated the majority of their retirement assets in tax-deferred vehicles, such as 401(k)s and/or IRAs. They may be concerned about the future direction of taxes, particularly given the funding levels of Medicare, Medicaid, and Social Security.

The general concept is: does it make sense to pay taxes now at a potentially lower rate and enjoy tax-free compounding as opposed to tax-deferred compounding going forward?

The Tax Trap of Traditional 401(k)s and IRAs

The impact of Required Minimum Distributions are oftentimes one of the biggest tax traps of 401ks and IRAs. Because our clients were diligent savers during their working years, they accumulated substantial assets in 401(k) plans and IRAs. When they turn 73 or 75, they’re forced to take out a certain percentage of those retirement accounts each year.

As your life expectancy shortens, the amount you’re required to take out increases. You start out at a little under 4%, and by the time you get to 90, you’ll be taking out north of 8% of your retirement account, whether you need it or not.

Think about what that can do to your taxable income, Medicare premiums, and ultimately, how those assets are passed on to the next generation. This tax trap is what we’re trying to solve well before clients hit that magic age.

Planning for Longevity in Retirement

More and more people are living longer, often into their 90s. The life expectancy of a 62-year-old female includes a 30% chance of living until 96. When planning with clients over 55 or 60, we may be looking at a retirement of 30 years or more, even longer than their working years.

You must consider this in light of the high inflation we have experienced these past few years. The cost of goods going up over that retirement period on a potentially fixed income is worrisome for many clients. That’s what we try to plan for and mitigate inflation risk coupled with longevity risk.

The Retirement Red Zone

I call the period ten years before you retire and the ten years after you retire the “Retirement Red Zone.” Decisions are magnified, and mistakes are magnified if you make the wrong move.

From an investment perspective, that’s important, especially during volatile times. Certainly, from a tax perspective, which also contributes to the long-term rate of return on your portfolio. This is something I aim to help my clients with as they prepare.

Strategic Planning for Retirement Success

While nobody can predict the future of taxes, you can take the known variables and project out your estimated lifetime tax rates. You will find that throughout retirement, there could be some opportunistic times when your income goes way down. If you’re making strategic moves during that time frame, such as Roth conversions, that planning can help position your retirement assets for better long-term growth and tax efficiency.

Remember, the planning doesn’t stop after retirement, it just changes. Whether you are on the brink of retirement or you’ve been retired for several years, having good guidance at every stage of the process is crucial for achieving financial peace and security in retirement.

Take a deeper dive into this topic by listening to Episode 10 of The Planning for Retirement Podcast. This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

convert ira to roth financial planning ira to roth retirement planning roth conversion why to do a roth conversion

Kevin Lao

July 31, 2025

7 Reasons Not to Do a Roth Conversion

July 17, 2025

I’ve never met anyone who wants to overpay the IRS. As a result, one of the number one topics we discuss with clients is how to reduce their lifetime tax bill. More specifically, whether or not they should consider a Roth Conversion with some of their IRA dollars.

Before we talk about the seven reasons that might cause you to delay, reduce, or reconsider doing a Roth conversion, let’s look at some big news brewing in Washington related to taxes on Social Security.

Social Security has a complicated formula to determine how much of your benefit will be included in your taxable income. On the low end, your entire benefit could be tax-free (0% included in taxable income). On the high end, up to 85% of your Social Security benefit could be taxable.

Senior Citizens Tax Elimination Act

Congressman Thomas Massey from Kentucky, along with 29 Republican co-sponsors, has introduced the Senior Citizens Tax Elimination Act. To provide some context, prior to 1986, Social Security benefits weren’t taxable at all. In 1986, Social Security implemented revisions and created the provisional income formula that determines how much of your benefit is included in taxable income.

Massey’s bill would essentially repeal the inclusion of Social Security benefits in taxable income altogether. This would also include tier one railroad benefits (pensions from working at the railroad). The bill was first introduced last year, but now it’s legitimate. It’s in the House and seems to have a decent chance of passing.

However, there are costs associated with implementing this bill. According to the Committee for Responsible Government, this is estimated to cost taxpayers about $1.8 trillion over the next decade. When we couple this with Social Security’s projected insolvency date of around 2033-2034, it raises questions about funding.

Currently, 80% of Social Security benefits are funded by payroll taxes from current workers. The Social Security trust fund supplements the remaining 20%. If benefits become tax-free, this could accelerate the insolvency date.

So, how will they pay for this bill? My crystal ball says taxes will increase in some way to fund the deficits projected for Social Security and Medicare.

Why is this relevant to our Roth conversion discussion? Because, while we know what taxes look like today, it’s virtually impossible to be 100% certain about future tax rates.

What is a Roth Conversion?

A Roth conversion involves moving or converting funds from a tax-deferred vehicle (like a traditional IRA, 401(k), 403(b), or TSP plan) into a tax-free vehicle. In exchange for doing this, you elect to pay the taxes now.

Why would you do this? At one point, you believed deferring taxes was the way to go, or maybe you didn’t have access to a Roth account. This is pretty common—15-20 years ago, many employers didn’t offer Roth 401(k) plans. But now you have the ability to convert some of those assets to Roth.

The benefit of a Roth account is tax-free growth going forward, as opposed to tax-deferred growth. But there are situations where converting might not be the best strategy.

1. You’re in a Higher Tax Bracket Today Than You Will Be in the Future

The first reason to reconsider a Roth conversion is if you’re currently in a higher tax bracket than you expect to be in the future. There are several scenarios where this might happen:

When you retire, your W-2 income or self-employment income disappears. Your only income might be capital gain distributions, dividends, interest, a small pension, or IRA distributions. If your tax bracket will drop substantially in retirement, it might make sense to wait until you enter what we call the “Roth conversion window.” This window is after retirement, but before you start taking Required Minimum Distributions (RMDs) and/or Social Security.

Your income might be temporarily high due to things like

Selling a business, stock, or rental property
Receiving a large bonus
Inheriting money

Doing a Roth conversion during these high-income years could push you into an unnecessarily higher tax bracket.

You might believe taxes will decrease in the future due to legislative changes, making it beneficial to wait for potential tax cuts before converting.

In short, if you expect your income bracket to drop at some point, it might be worth evaluating conversions at that time instead of now.

2. You’re Leaving a High-Income Tax State for a Low or No-Income Tax State

According to the Tax Foundation, state income taxes significantly influence net migration in the U.S. The top third of states with positive net migration have an average state income tax of about 3.5%. The bottom third average nearly double that at 6.7%.

I don’t believe you should move to a state in retirement solely because of taxes. However, if you’re planning to move from a high-tax state like New Jersey, New York, or California to a low or no-income tax state, you might consider waiting to do Roth conversions until after your move.

You could potentially benefit from both a lower federal bracket at retirement and little to no state income tax, maximizing your tax savings on the conversion.

It will be interesting to see how migration patterns evolve as companies bring employees back to in-person work. For retirees with the flexibility to move anywhere, taxes will likely remain an important consideration.

3. Your Heirs Are in Lower Tax Brackets

The SECURE Act, passed at the end of 2019, eliminated the “stretch IRA” for most beneficiaries. Previously, individuals who inherited an IRA could stretch distributions over their life expectancy. Now, most non-spouse beneficiaries must liquidate the account within 10 years.

This applies to both traditional IRAs and Roth accounts. The key difference is that Roth account distributions during those 10 years are tax-free to beneficiaries, while traditional IRA distributions are fully taxable.

If your beneficiaries are in a very low tax bracket, while you are in a higher tax bracket, there could be an argument for not converting. For example, if you’re in the 24% or 32% bracket due to Social Security, a pension, and investment income, while your children are in the 10% or 12% bracket, it might make more sense to leave those assets to your heirs and let them pay taxes at their lower rate.

The challenge with this approach is that it requires knowing exactly when you’ll pass away and what tax bracket your children will be in at that time. Your 25-year-old child who’s currently in graduate school with no income might eventually have high earning potential or start a successful business, putting them in a higher tax bracket than you.

Additionally, even if your beneficiaries are in a relatively low tax bracket, inheriting a large IRA could push them into a higher bracket during the 10-year distribution period. For example, if your IRA is worth $2 million, your beneficiaries would need to distribute about $200,000 annually over 10 years, potentially pushing them into a much higher tax bracket regardless of their current income.

You should also consider the distribution of your assets between taxable, tax-deferred, and tax-free accounts when making this decision.

4. Hidden Taxes Could Reduce the Benefit of Converting

Any Roth conversion will increase your taxable income in the year you do the conversion, even though it doesn’t put cash in your bank account. This can trigger various “hidden taxes” based on calculations like modified adjusted gross income (MAGI), taxable income, or provisional income.

Here are some examples:

IRMAA Surcharge: The Income-Related Monthly Adjustment Amount applies once you’re Medicare eligible. While Medicare Part A is free, Part B has a premium (about $185 for 2025). Part D depends on your chosen drug plan. If your income exceeds certain thresholds, you’ll pay additional surcharges for both Part B and Part D. These surcharges can range from $1,000 to over $6,000 per year per person.

ACA Premium Tax Credits: If you retire before 65 and use the Affordable Care Act for health insurance, you might be eligible for premium tax credits based on your modified adjusted gross income. Roth conversions could reduce these credits.

Net Investment Income Tax: If your MAGI exceeds $250,000 (married filing jointly) or $200,000 (single), there’s an additional 3.8% tax on investment income like dividends, interest, and rental income.

Capital Gains Taxes: If you’re married filing jointly and your taxable income is below $96,700 for 2025, you don’t pay any tax on long-term capital gains. A Roth conversion could push you above this threshold.

Social Security Taxation: As mentioned earlier, between 0% and 85% of your Social Security benefits could be taxable depending on your provisional income. Roth conversions can increase this percentage.

While these hidden taxes aren’t necessarily reasons to avoid Roth conversions entirely, they should factor into your decision about timing and amount.

5. You’re Planning to Donate to Charity During Your Lifetime or at Death

Traditional IRAs are some of the best accounts to donate to charity. If you convert all your tax-deferred assets to Roth, you lose this potential tax benefit.

One powerful strategy is the Qualified Charitable Distribution (QCD). Once you turn 70½, you can donate up to $107,000 (in 2025) directly from your IRA to charity without recognizing an taxable income. What makes this even more powerful is that once you begin taking Required Minimum Distributions (RMDs), you can reduce your RMD dollar-for-dollar up to that cap.

For example, if your RMD is $50,000 and you typically donate $30,000 to charity, you could do a $30,000 QCD directly from your IRA. This would reduce your RMD to $20,000, essentially making that $30,000 completely tax-exempt—even better than a tax deduction.

Similarly, if you’re planning to leave money to charity at death, your traditional IRA is a great asset to use. While your non-spousal beneficiaries (typically children or nieces/nephews) will have to pay taxes as they withdraw from the inherited IRA over the 10-year period, charities don’t pay any taxes on these distributions.

This doesn’t mean you shouldn’t convert at all, but you might consider not converting as much or as aggressively if charitable giving is part of your plan.

6. You’re Planning to Self-Fund for Long-Term Care Costs

Long-term care is one of the most significant risks retirees face today. The uncertainty lies in whether you’ll need care, and if so, for how long—six months or ten years? The costs can be substantial, often exceeding six figures annually.

Some people buy long-term care insurance, while others plan to use their own assets. If you’re in the latter group, there’s an interesting tax angle to consider. While IRA distributions are taxable, there’s a deduction if your medical costs exceed 7.5% of your adjusted gross income. These expenses can be added to your itemized deductions.

If you need long-term care later in life, it’s almost certain your expenses will exceed that 7.5% threshold, given the high costs involved. If you have an IRA you can tap into to pay for care, you might be able to deduct some of those distributions because of the medical expense deduction.

While this deduction may not offset the entire tax on the distribution, it can be significant enough to argue against converting all of your IRA to Roth.

7. You Don’t Have the Cash to Pay the Taxes

The traditional approach to paying for Roth conversion taxes is to use cash on hand from a savings or checking account, or to increase withholding from sources like Social Security or a pension to offset the additional taxes.

If these aren’t options—if you don’t have the cash or need your income from other sources—you may have to use funds from your IRA to pay the tax. If you’re younger than 59½, this isn’t advisable because you’ll face a 10% early withdrawal penalty.

Even if you’re over 59½, using money from your IRA to pay the taxes leaves less money invested that could otherwise grow tax-deferred. This may not be ideal depending on your time horizon and the breakeven point of the Roth conversion.

Your plan should strongly favor Roth conversions for it to make sense to pay the tax out of the IRA. While there are cases where this works (I have a client for whom we’re doing exactly this), if you don’t have the cash and the case for Roth conversion isn’t compelling, you might want to pause or avoid the conversion altogether.

Final Thoughts on Roth Conversion Decisions

Understanding when a Roth conversion makes sense requires careful analysis of your current situation, future expectations, and overall financial goals. While Roth conversions can be powerful tools for retirement planning, they aren’t right for everyone in every situation.

Remember that tax laws and personal circumstances change over time, so regularly reviewing your retirement and tax planning strategy is essential for long-term success.

If you’re approaching retirement and wondering if you should do a Roth Conversion, check out Episode 66 of The Planning for Retirement Podcast. Consider working with a financial advisor who specializes in retirement income planning. They can help you analyze your specific situation and develop a claiming strategy that aligns with your overall financial goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

financial planner financial planning ira to roth retirement income retirement planning roth conversion

Kevin Lao

July 17, 2025