Understanding Roth Conversions
We believe clarity beats noise. The goal isn’t to pay the least tax this year—it’s to limit the lifetime amount of tax you and your family pay. A Roth conversion can help by trading a known tax bill today for tax-free growth tomorrow.
A Roth conversion moves money from a pre-tax IRA or 401(k) into a Roth IRA. You owe ordinary income tax on the amount converted, but from there, qualified growth and withdrawals are tax-free. There’s also no Required Minimum Distribution on your own Roth, and each conversion starts its own five-year clock you’ll want to track.
This is different from a Backdoor Roth IRA or a Mega Backdoor Roth. Those are contribution strategies that route new after-tax dollars into a Roth, often using specific 401(k) plan features. We’ll cover both in a separate post soon.
The reason this works is time. Paying tax earlier can lower your effective rate over decades because every future dollar of gain compounding inside the Roth is never taxed again. Using the Rule of 72, money roughly doubles about every 10 years at ~7.2%, which shows why long horizons favor tax-free growth, including for heirs.
Timing matters. We like to map a Roth plan in advance so that if markets dip, you can convert at lower values and let the recovery happen inside the Roth. Being ready turns volatility into an opportunity rather than a threat.
How much to convert is a bracket decision, not a hunch. Many families “fill the bracket” each year—converting up to the top of a target marginal bracket without spilling into a much higher one. Good years for this are often the “gap years” between retirement and Social Security or before RMDs begin.
Pair the conversion with smart offsets. Bunch deductions, fund a donor-advised fund, or sequence charitable gifts to counter the added income. With the One Big Beautiful Bill Act now law, today’s individual brackets are permanent under current rules. That shifts planning from a “beat the sunset” mindset to year-by-year bracket management, IRMAA/ACA thresholds, and opportunistic conversions when markets dip.
Roth conversions are not always advisable. If you expect to be in a much lower tax bracket later—because of reduced income, large deductions, or a move to a low-tax state—waiting may be better. A short time horizon also weakens the case, because there’s less time for tax-free compounding to overcome today’s tax cost.
How you pay the tax matters. Paying the conversion tax from outside cash preserves more Roth principal and keeps the math working in your favor. If you’re under 59½, using IRA dollars to cover tax can even trigger penalties, which is another reason to plan ahead.
Beware the collateral effects. Conversion income can push you over IRMAA thresholds for Medicare or over ACA premium cliffs, and it can interact with state taxes, the Net Investment Income Tax, or even AMT in rare cases. If you expect to make large Qualified Charitable Distributions later, keeping some pre-tax dollars can be more efficient for giving.
Implementation is straightforward with a clean checklist and good records. Clean up pro-rata issues by consolidating or rolling pre-tax IRA balances into an active 401(k) when appropriate, so after-tax basis can be converted cleanly. If you’re age 73 or older, take the RMD first—RMDs cannot be converted—then convert additional dollars. Model IRMAA and state taxes before you pull the trigger, and set proper withholding or quarterlies to avoid penalties.
The legacy benefits are real. Roth IRAs pass as a “clean” inheritance under current rules: heirs typically must withdraw the account within 10 years, but those withdrawals aren’t taxable income. That can reduce your children’s lifetime taxes and keep more of your family’s wealth compounding.
At Sevey Wealth, we believe the right Roth plan is about limiting lifetime tax, not chasing a headline. We’ll model multiple scenarios—no conversion, staged annual fills, and opportunistic “dip” conversions—using real market histories and a Roth conversion calculator to show asset growth and break-even dynamics. If you’re wondering whether to convert—and how much—let’s run the numbers together and build a calm, step-by-step plan that’s ready before the next market move.
