Should I Be Converting to Roth This Year? And How Much?

A man who retired in July told me, "I know I'm supposed to be doing Roth conversions. I've read about it. I just don't know how much, and I'm afraid of getting it wrong."

That's the honest version of the question. Not whether. How much. And almost nobody has been given a real answer.

What a conversion is

You move money from a traditional IRA to a Roth IRA and pay income tax on it this year. After that, the money and everything it earns is never taxed again, and it never has a required distribution.

That's the whole mechanism. What people get wrong is the decision around it.

The test most people use, and why it's wrong

The usual test is: will my tax rate be lower later? If yes, don't convert. That's what the articles say, and it's what most advisors say.

It's incomplete. When you convert and pay the tax from a taxable account, you also remove that money from an account where its growth was being taxed every year. That drag is gone forever. Research from Vanguard put a name on this: the break-even tax rate. It's the future rate at which converting and not converting come out even, and it is consistently lower than your current rate.

In plain terms: a conversion can win even if your bracket later is somewhat lower than it is today. "I'll be in a lower bracket in retirement" is where the analysis starts, not where it ends.

The reason nobody mentions: your heirs

If your children inherit a traditional IRA, the law now gives most of them ten years to empty it. Every dollar comes out as ordinary income, on top of whatever they're already earning. For a lot of families that means the money lands in a child's peak earning years, taxed at the highest rate anyone in the family will ever pay.

An inherited Roth has the same ten-year clock. The withdrawals are tax-free.

So the question isn't only "my rate now versus my rate later." It's "my rate now versus my kids' rate in their fifties." For most of the households I work with, that comparison ends the debate.

Why the window matters

Between the last paycheck and the first required distribution, your income is lower than it has been in decades. That's the window. Once required distributions start, at 73 for most people, the IRS sets your income for you and the window narrows.

Every year of the window you don't use is gone. There's no catching up later.

Where it goes wrong

The mistakes I see are the same ones every fall. Converting nothing because the future-bracket test said no. Converting a round number because it felt reasonable. Converting so much in one year that it stacked income into a bracket that wiped out the benefit. Paying the tax out of the IRA itself. Not checking what the conversion does to the Medicare premium two years out. And treating it as reversible, which it hasn't been since 2018.

None of those are the result of bad intentions. They're the result of nobody doing the math.

What the number depends on

How much to convert this year depends on your income without the conversion, the bracket you're willing to pay into, the Medicare thresholds two years out, where the tax gets paid from, and what the money is ultimately for. Change any one and the number changes.

That's why it's a number, not a rule of thumb. And why it's worth having someone work it out every year, in writing, before the window closes.

If you've read about conversions and still can't name your number, let's talk it through.

Let's talk it through - https://calendly.com/seveywealth/introduction