Roth Conversion Tax Strategy: When to Convert in 2026

Quick Answer

A Roth conversion means moving money from a traditional IRA or 401(k) to a Roth IRA. The converted amount is taxed as income in the year of conversion, but afterward, it grows tax-free and withdrawals in retirement are tax-free. Conversions make sense in low-income years, before Social Security starts, or when you expect higher taxes in the future. 2026 conversions at lower tax brackets can save substantial taxes over a 30+ year retirement.

What Is a Roth Conversion?

A Roth conversion is a two-step process:

1. Move money from a traditional IRA, SEP-IRA, Solo 401(k), or 401(k) into a Roth IRA.
2. Pay income tax on the amount converted in the year you convert.
3. Enjoy tax-free growth on the converted funds for life.

Example: You have a $100,000 traditional IRA earning 0% today. You convert $30,000 to a Roth IRA. You owe income tax on $30,000 (taxed at your marginal rate). If you're in the 24% bracket, you owe $7,200 in taxes. But the $30,000 in your Roth IRA now grows tax-free. In 30 years, if it grows to $150,000, you owe no tax on the $120,000 gain—that's the tax savings from converting.

When Conversions Make Sense

1. Low-income years: If you retire before Social Security starts (say, age 60), you might have very low income for a few years. Converting at low tax rates saves substantial taxes. Example:

• Age 60: Retirement income is $40,000 (part-time work). You're in the 12% bracket.
• You convert $50,000 of a traditional IRA to Roth. The $50,000 conversion pushes your income to $90,000, in the 22% bracket.
• You pay roughly $5,000–7,000 in extra tax on the conversion.
• Age 67: Social Security starts, increasing income to $100,000+. If you'd converted then, you'd be in the 24% bracket, paying $12,000 in tax. By converting at 60, you saved ~$5,000.

2. Expecting higher future taxes: If you expect tax rates to increase (Congress allowing tax cuts to expire, higher earning in the future, higher Medicare premiums tied to income), converting at today's lower rates locks in those rates. A Roth conversion is, in effect, a bet that tax rates will rise.

3. Required Minimum Distribution (RMD) planning: Starting at age 73 (2026 rules), you must withdraw from traditional IRAs. RMDs increase your income, pushing you into higher tax brackets. Converting early reduces the size of future RMDs and the taxes they trigger.

4. Backdoor Roth strategy: If your income exceeds Roth IRA contribution limits, you contribute to a traditional IRA (non-deductible) then immediately convert to Roth. This is legal and widely used by high earners. See the /products/attorney-backdoor-roth-calculator tool.

5. Spousal conversions: For married couples, if one spouse has a large traditional IRA and the other has minimal income, converting the large IRA when the lower-earner is between jobs avoids the "marriage penalty" and spreads income across two people.

2026 Roth Conversion Math

The cost of converting depends on your marginal tax bracket:

A $50,000 conversion in the 12% bracket costs $6,000 in tax. The same conversion in the 32% bracket costs $16,000. Timing is critical.

Example: Optimal conversion timing

Year 1 (age 62): You retire. Income is $35,000 (part-time consulting, not including traditional IRA). You're in the 12% bracket.

• You convert $35,000 of traditional IRA to Roth.
• Your income rises to $70,000, moving you into the 22% bracket.
• Tax on conversion: ($70,000 – $47,150 standard deduction) × 22% = $5,087 (rough estimate).
• If you'd waited 5 years until age 67, Social Security ($35,000/year) would push you into the 24% bracket, costing $8,400+ for the same conversion.
• Savings from converting at 62: ~$3,300.

Pro-Rata Rule and the IRA Aggregation Problem

Here's a critical pitfall: The "pro-rata rule." If you have any traditional, SEP, or SIMPLE IRAs, a conversion is partly taxable and partly non-taxable based on the ratio of pre-tax to after-tax money across all your IRAs.

Example of the pro-rata trap:

You have:

• Traditional IRA: $100,000 (pre-tax)
• Roth IRA: $50,000 (already converted)
• You want to convert $30,000 from the traditional IRA to Roth.

The pro-rata rule aggregates all IRAs: Total = $130,000 pre-tax out of $130,000 total = 100% pre-tax. So the entire conversion is taxable.

But if you had:

• Traditional IRA: $70,000 (pre-tax)
• Roth IRA: $50,000 (after-tax)
• Non-deductible contribution to traditional IRA: $30,000 (after-tax)
• Total IRAs: $150,000
• Pre-tax: $70,000 / $150,000 = 46.7%

If you convert $30,000, only 46.7% × $30,000 = $14,000 is taxable. The remaining $16,000 is non-taxable.

This rule makes conversions less attractive if you have large traditional IRAs but beneficial if you've built up after-tax contributions. It's why the backdoor Roth works—you contribute after-tax money to a traditional IRA, then immediately convert, and only the tiny amount of pre-tax money (if any) is taxable.

Use the /products/roth-conversion tool to calculate the pro-rata rule and your conversion tax bill.

Roth Conversion vs. Backdoor Roth

Both involve getting money into a Roth IRA, but they're different:

• Roth conversion: Moving an existing traditional IRA to Roth. Taxable in full (unless you have after-tax contributions).
• Backdoor Roth: Contributing after-tax money to a traditional IRA, then immediately converting. Taxable only if the traditional IRA had pre-tax money.

The backdoor Roth is better for high earners (who can't contribute directly to a Roth) because the contribution is after-tax (no deduction), so the conversion is tax-free (except for the pro-rata rule on pre-tax IRAs).

State Tax Considerations

Roth conversion taxes are federal. But if you live in a high-income-tax state (California at 13.3%, New York at 10.9%, etc.), the state income tax on a conversion is substantial and should factor into your decision.

Example: You live in California and plan a $50,000 conversion. Federal tax at 22% = $11,000. California tax at 9.3% = $4,650. Total = $15,650. If you move to a no-income-tax state (Texas, Florida) before converting, you save the state tax.

Some retirees specifically relocate to convert after the move, saving state taxes.

Five-Year Rule and Access to Converted Funds

Once you convert to a Roth, the converted money can be withdrawn tax-free after age 59.5 (or in other exceptions). BUT there's a five-year rule:

The conversion you do this year (2026) has its own five-year period. If you withdraw conversion funds before 2031, you owe a 10% penalty (unless an exception applies, like disability or death). Earnings (investment gains) in your Roth have a separate five-year rule.

This rule is often misunderstood. Withdrawing the converted principal before five years triggers a 10% penalty. The earnings always require age 59.5 (or exceptions).

Strategic Sequencing: Which Accounts to Tap First in Retirement

Conversions should be part of a larger "withdrawal strategy" that accounts for Social Security, Medicare premiums (which are income-based), and required minimum distributions (RMDs).

Optimal withdrawal sequence in retirement:

1. Taxable brokerage accounts (subject to capital gains tax only).
2. Roth IRA (tax-free, no RMD).
3. Traditional IRA or 401(k) (taxable, triggers RMD).

But before triggering RMDs, consider Roth conversions to get money out of traditional accounts at lower tax rates. This reduces future RMDs and the income-based taxation of Social Security and Medicare premiums.

Risks and Downsides

1. You must pay tax: Conversions create a tax bill in the conversion year. If you don't have outside money to pay the tax, you reduce the conversion benefit (you're paying tax from the conversion itself).

2. IRMAA (Medicare premiums): If your income (including conversions) exceeds $103,000 (single) or $206,000 (joint) in 2026, your Medicare Part B and D premiums jump substantially. A conversion pushing you over these thresholds triggers higher premiums for 2–3 years (income is measured two years prior).

3. Claw-back of credits: High conversions can reduce your claim of education credits, child tax credits, or other income-based credits.

4. Pro-rata rule: If you have traditional IRAs, conversions are partly taxable, reducing the benefit.

Sources

• Internal Revenue Service. "Roth Conversions." IRS.gov.
• Internal Revenue Service. "Roth IRA Conversions." IRS.gov.
• Internal Revenue Service. "Pro-Rata Rule." IRS.gov.
• IRS Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs).
• CFA Institute. "Roth Conversion Tax Planning Strategies."