The Case for Roth Conversions
If you follow tax legislation at all, you probably remember the Tax Cuts and Jobs Act (TCJA) of 2017 and the buzz around its scheduled expiration at the end of 2025. For the past few years, that deadline created urgency around Roth conversions. Convert now, the thinking went, before rates go back up.
Then, on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) permanently extended those TCJA brackets. Instead of closing the window for Roth conversions, it got opened even wider. This is great news for those doing strategic tax planning, because spreading Roth conversions out over time, allows us to minimize the tax impact by utilizing the lower-end tax brackets to their full extent. So the case for Roth conversions is just as strong as ever, under the right circumstances.
What Is a Roth Conversion?
A Roth conversion is straightforward: you take money from a pre-tax account (like a Traditional IRA or 401(k)), pay income taxes on it now, and move it into a Roth IRA where it grows tax-free and can be withdrawn tax-free in retirement. It’s not a silver bullet, and it doesn’t avoid taxes altogether, but think of it as prepaying your tax bill at today's rates, so you do not owe anything on that money later.
In this case we are not talking about a strategy often called backdoor Roth contributions. That is a way to contribute to Roth IRAs, even if you are over the income limit to contribute directly. It does utilize a conversion, but in a different scope than we are talking about today.
Why Roth Conversions Make Sense
Rates Are Low Now. That May Not Last Forever.
Yes, current tax rates are now "permanent" in the sense that Congress would have to pass new legislation to change them. But with the national debt sitting north of $39 trillion, it is hard to imagine these rates holding indefinitely. The only thing truly permanent in the tax code is that it will change.
Tax rates that were supposed to expire have been preserved for now, which means there is still an opportunity to convert at historically low rates before the political or fiscal landscape shifts. It’s not a certainty that taxes will go up, but looking at the historical context allows us to make a more informed decision and reduce the risk of future tax legislation changes.
Tax Diversification in Retirement.
Most people retire with the bulk of their savings in pre-tax accounts. Every dollar they pull out is taxed as ordinary income. A healthy Roth balance gives you flexibility. You can draw from pre-tax when rates are low, draw from Roth when they are not, and have more control over your taxable income when combined with other sources like Social Security, pensions, and capital gains. That kind of control can add up to significant tax savings over a long retirement.
Reducing Future Required Minimum Distributions.
Roth IRAs have no required minimum distributions (RMDs) for the account owner. If you have a large pre-tax balance, your RMDs in your 70s could push you into a higher bracket, increase your Medicare premiums, and raise the taxable portion of your Social Security. Converting a portion of those funds before your income is “forced” higher can soften that problem significantly.
The "Widow Tax" Problem.
When one spouse passes away, the surviving spouse files as a single taxpayer. That means narrower brackets and a higher tax rate on the same income. A Roth balance provides the surviving spouse with a source of tax-free income that is completely unaffected by the filing status change.
Estate Planning Benefits.
A Roth IRA is one of the best assets you can leave to a beneficiary. Non-spouse heirs inherit it completely tax-free and have a 10-year window to keep the funds invested and growing, without owing a dime in income tax on the gains. If legacy planning matters to you, converting pre-tax dollars to Roth is one of the most direct ways to leave more behind.
Timing is Important
The best window to convert is often post-retirement but before claiming social security, when your taxable income is likely the lowest it will ever be. There is a case for waiting until later in the year to do a conversion. By October or November, you have a much clearer picture of your total taxable income for the year. That means you can calculate exactly how much room remains before you hit the next tax bracket (or other tax “cliffs”) and convert up to that threshold. Converting in January based on a guess often means leaving money on the table or accidentally bumping into a higher bracket.
The other timing opportunity is during market downturns. A Roth conversion is based on the dollar value of the assets you convert on the day you convert them. If your IRA has dropped in value during a market correction, converting during that dip means you pay taxes on a lower balance. When the market recovers, that growth happens tax-free inside the Roth. It’s important to note that the funds are staying invested the entire time, so we are only “timing the market” from a tax optimization standpoint, not from an investment standpoint.
Other Things to Consider
Roth conversions are not right for everyone in every year. There are a few things that can complicate the math.
If you are in a peak earning year and already in the 32% bracket or higher, the math on paying taxes now versus later often does not work in your favor. A lower-income year, like the year you retire or take time off, is typically a better opportunity.
Large conversions can trigger IRMAA surcharges on Medicare premiums and increase the taxable portion of Social Security income. These are easy to overlook and worth modeling carefully before you convert. There is also a new, additional senior standard deduction that is subject to income limits and needs to be accounted for.
There is a 5-year waiting period for each individual conversion, before it can be withdrawn for the Roth. So short-term liquidity needs have to be considered.
Ideally, you pay the taxes due on a conversion from cash or a taxable account, not from the IRA itself. Paying from within the IRA reduces what ends up in the Roth and undermines (but doesn’t eliminate) the long-term value of the strategy.
The Bottom Line
The extension of low tax rates is good news, but it should not be mistaken for a reason to wait. These rates will not last forever, and the other benefits of a Roth conversion (flexibility, RMD reduction, estate planning, protecting a surviving spouse) exist regardless of where tax rates happen to be.
If you have a significant pre-tax balance and have not thought through a Roth conversion strategy, now is a good time to start. The right amount to convert and the right time to do it depends on your income, your bracket, and what else is happening in your financial picture. That is exactly the kind of planning we do together.