Roth IRA Conversions

Understanding Roth IRA Conversions

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Fairvoy Private Wealth | Education Series

Roth IRA Conversions:
Tax-Free Wealth for Life

A Roth conversion moves money from a tax-deferred account — a Traditional IRA or old 401(k) — into a Roth IRA where future growth and qualified withdrawals are completely tax-free. Done strategically, it can be one of the most powerful moves in your financial plan.

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This guide reflects the analysis and planning considerations used by Fairvoy advisors in client engagements. Please use this as a guide, but consult with your qualified financial professionals before making any conversion decisions as tax law and rules can change. Educational purposes only — not personalized tax or investment advice.
0%
Federal tax on qualified Roth withdrawals in retirement
0%
Required Minimum Distributions (RMDs) during your lifetime for account owners and spouses
10yr
Rule for inherited Roth IRAs — 10 years of tax-free compounding for heirs (may require an annual distribution)

What Is a Roth IRA Conversion?

A Roth IRA conversion is a deliberate transfer of pre-tax money — sitting in a Traditional IRA, SEP IRA, SIMPLE IRA, or eligible employer plan like a 401(k) or 403(b) — into a Roth IRA. When you convert, the amount transferred is added to your ordinary taxable income for that year and taxed at your marginal rate. After that single tax event, the funds grow completely tax-free and can be withdrawn tax-free in retirement (subject to the five-year rule and age requirements).

Unlike a direct Roth IRA contribution — which is limited to $7,500 per year in 2026 ($8,000 if age 50+) and subject to income phase-outs — there is no income limit and no dollar cap on conversions. You can convert $1,000 or $1,000,000 in a single year; the only constraint is the tax cost you’re willing to accept.

Mechanics

How the Money Moves

Your custodian transfers shares or cash from the Traditional IRA to a Roth IRA — often at the same institution. You’ll receive a Form 1099-R showing the taxable distribution and a Form 5498 confirming the Roth contribution.

Five-Year Rule

The Clock Starts

Each conversion starts a new five-year clock for penalty-free withdrawal of the converted principal. Earnings have their own five-year rule starting from account opening. Planning around these clocks matters if you’re under 59½.

Irreversibility

No Do-Overs Since 2018

The Tax Cuts and Jobs Act of 2017 eliminated “recharacterization” — the ability to undo a conversion. Once you convert, it’s permanent. This makes tax-year modeling critical before you pull the trigger.

Why Would You Convert? Six Powerful Reasons

A Roth conversion is rarely “obviously right” — it requires honest analysis of your current versus future tax situation. Here are the scenarios where conversions consistently make sense:

1

You Expect Higher Taxes Later

If your current marginal rate is lower than what you project in retirement — due to rising income, RMDs, or potential tax law changes — paying tax today at the lower rate is mathematically superior.

2

You’re in a Low-Income Year

The gap between jobs, a business loss year, large deductions (charitable, medical), or early retirement before Social Security and RMDs create ideal windows to convert at artificially low rates.

3

You Want to Eliminate RMDs

Traditional IRAs force distributions starting at age 73 (75 for those born after 1960 under SECURE 2.0). Roth IRAs have no RMD requirement for original account owners and spouses — giving you full control over your taxable income in retirement.

4

You Have a Long Time Horizon

The longer your money grows tax-free, the more powerful a conversion becomes. For investors in their 40s or early 50s with 20+ years of runway, the compounding benefit can dwarf the upfront tax cost.

5

You Want Tax Diversification

Holding assets across pre-tax, Roth, and taxable accounts gives you flexibility to manage taxable income in retirement — drawing from the most tax-efficient bucket each year based on circumstances.

6

You Want to Leave a Tax-Free Inheritance

Roth IRAs are exceptional estate planning tools. Heirs inherit them tax-free and — under SECURE 2.0 — can grow them for up to 10 years without mandatory distributions (in some cases), representing a decade of additional tax-free compounding.

Tax Considerations: The Math That Matters

Every conversion is fundamentally a tax arbitrage bet: you pay tax today in exchange for tax-free growth and withdrawals tomorrow. Whether that bet pays off depends on several variables that a CFP® models carefully.

The Break-Even Framework

The simplest test: if your tax rate at conversion equals your tax rate in retirement, converting breaks even (ignoring time value). You “win” when your current rate is lower than your future rate. The more years of tax-free compounding you have, the more the math tilts in favor of converting even at similar rates. Those generally in the highest bracket likely will not benefit if they believe their tax rate will remain high throughout retirement. While taxes are an important consideration, there may be other reasons to convert depending on your personal goals.

10% Bracket
Best Case
12% Bracket
Best Case
22% Bracket
Often Ideal
24% Bracket
Analyze Carefully
32% Bracket
Caution
35% Bracket
Caution
37% Bracket
Caution

Bar length reflects relative tax efficiency — lower brackets generally favor conversion more strongly. Individual results vary and your specific situation should be discussed with a qualified professional.

2026 Federal Tax Brackets (Single / MFJ)

Rate Single Filer Married Filing Jointly
10%Up to $12,400Up to $24,800
12%$12,401 to $50,400$24,801 to $100,800
22%$50,401 to $105,700$100,801 to $211,400
24%$105,701 to $201,775$211,401 to $403,550
32%$201,776 to $256,225$403,551 to $512,450
35%$256,226 to $640,600$512,451 to $768,700
37%Over $640,660Over $768,700

Source: Internal Revenue Service. Brackets are inflation-adjusted annually. The above table does not including all filing brackets, such as Head of Household or Married Filing Separately. Please consult with your CPA.

What Tax Brackets and Filing Can Convert?

Generally speaking, no matter your tax filing status, you may convert to a Roth IRA as there are no income restrictions on conversion. Sometimes there may be confusing information online about restrictions and income limits. However, that generally refers to Roth IRA contributions, not conversions.

⚡ Bracket “Filling” Strategy: A possible strategy is to convert only enough each year to fill your current bracket — without pushing into the next one. For example, a married couple in the 22% bracket might convert up to the $211,400 threshold. This spreads the tax cost over multiple years and keeps the marginal rate controlled.

Key Tax Variables to Model

IRMAA

Medicare Premium Surcharges

Large conversions can push income above IRMAA thresholds, triggering higher Medicare Part B and D premiums — with a 2-year lookback. A $50,000 overshoot can cost thousands in avoidable premiums.

Social Security

Benefit Taxation

Up to 85% of Social Security benefits may be include in taxable income once combined income exceeds $44,000 (MFJ). Conversion income counts, effectively creating a “hidden” marginal rate spike in the middle brackets.

State Taxes

State-Level Impact

Some states fully exempt retirement income; others tax it fully. If you plan to move to a no-income-tax state in retirement, converting before you move may be counterproductive. Know your state’s rules.

⚠ Pay Taxes From Outside the IRA: If possible, pay the conversion tax bill from non-IRA funds. Using IRA money to pay the taxes reduces the converted amount, diminishes the compounding benefit, and — if you’re under 59½ — the tax payment itself may be subject to a 10% early withdrawal penalty.

Finding Your “Conversion Sweet Spot”

Timing is everything with Roth conversions. The ideal window is typically between retirement and age 73 — when earned income has stopped, RMDs haven’t begun, and Social Security may not yet be claimed. This “gap period” often represents the lowest taxable income of your adult life.

Working Years High income, high tax rate 🎯 Conversion Sweet Spot Retired · Pre-SS · Pre-RMD Lowest taxable income of your life RMDs Begin (Age 73/75) Income rises · Conversion window narrows Working Retire ← Best Conversion Years → Age 73 Later

Other Prime Conversion Windows

  • Between jobs — A period of lower income creates an artificially low bracket
  • Business loss years — NOLs can offset conversion income
  • Large deduction years — Bunching charitable gifts, high medical costs, or a QCD strategy can lower net income
  • Market downturns — Converting depressed assets means paying tax on a lower value while capturing all the recovery inside the Roth
  • Early retirement, ages 55–65 — Before Medicare, before Social Security, before RMDs — often the ideal trifecta

When Conversions May Not Make Sense

  • You expect to be in a lower tax bracket in retirement
  • You need the converted funds within five years
  • You’d need to use IRA funds to pay the tax bill
  • The conversion would trigger IRMAA surcharges disproportionate to the benefit
  • You’re in a high-income-tax state and plan to retire to a no-tax state
  • You have a short life expectancy and no estate planning goals
🌳 Estate Planning & Generational Wealth How Roth IRAs supercharge what you leave behind — and reduce the tax burden on your heirs

One of the most compelling — and often overlooked — reasons to do a Roth conversion is estate planning. By converting to a Roth, you pre-pay the income tax bill so your heirs don’t have to. The result: a fully tax-free inheritance that compounds for up to a decade after your death.

The 10-Year Inherited IRA Rule

Under the SECURE Act (2019) and SECURE 2.0 (2022), most non-spouse beneficiaries must empty an inherited IRA within 10 years. For a Traditional IRA, every dollar withdrawn is taxable — potentially at the heir’s peak earning-years rate. For an inherited Roth IRA, every dollar withdrawn is tax-free. That distinction can mean a difference of tens of thousands of dollars.

No RMDs Preserve the Legacy

Traditional IRAs force the owner to take (and pay tax on) distributions starting at age 73. Roth IRAs have no RMDs during the owner’s lifetime. This means the account can compound untouched for decades, making the Roth far more valuable as an estate asset — especially if you don’t need the income in retirement.

Estate Tax Considerations

For larger estates, a Roth conversion can help reduce the amount that may eventually be subject to estate taxes, since the income taxes paid on the conversion are typically paid from existing assets, lowering the overall size of the estate. As of 2026, the federal estate tax exemption is $13.99 million per person ($27.98 million for married couples). A Roth conversion can be part of an overall estate strategy by using taxable assets to pay the conversion tax today, effectively moving value out of the estate while allowing the converted Roth assets to grow income tax-free for beneficiaries.

Beneficiary Designation Alignment

A Roth IRA conversion strategy should always be coordinated with your beneficiary designations, trust structures, and overall estate plan. Naming the right primary and contingent beneficiaries helps ensure the 10-year stretch rule or spousal rollover rules are applied correctly — potentially saving heirs significant taxes.

Traditional IRA vs. Roth IRA: Side-by-Side

Understanding the full differences helps clarify why and when a conversion makes strategic sense.

Feature Traditional IRA Roth IRA
Tax Treatment of Contributions Pre-tax (deductible, subject to income limits) After-tax (no deduction; tax already paid)
Tax on Growth Tax-deferred — grows untaxed until withdrawn Tax-free — permanently exempt from federal tax
Tax on Withdrawals Taxed as ordinary income Tax-free (qualified distributions)
Required Minimum Distributions Required starting at age 73 (or 75 per SECURE 2.0) No RMDs during owner’s lifetime
Income Limits (Contributions) Deductibility phases out with workplace plan access Contributions phase out at $150K–$165K (single) / $236K–$246K (MFJ) in 2026
Contribution Limit (2026) $7,500 / $8,000 if age 50+ $7,500 / $8,000 if age 50+ (subject to income limit)
Early Withdrawal (Before 59½) 10% penalty + income tax on full amount Contributions: any time penalty-free. Conversions: 5-yr rule applies. Earnings: 10% penalty.
Inherited IRA Rules 10-yr rule; distributions taxable as income to heirs 10-yr rule; distributions tax-free to heirs
Estate Tax Impact Full pre-tax value included in taxable estate After-tax conversion reduces taxable estate by tax paid

How to Execute a Roth Conversion: Step by Step

The mechanics are simpler than most people expect. The hard part is the planning that precedes it.

1

Model the Tax Impact Before Year-End

Work with your CFP® and CPA to project your total taxable income for the year, identify your conversion “room” within the target bracket, and estimate the tax cost. Tools like Roth conversion calculators can show break-even timelines and long-term projections, but a comprehensive financial plan provides the most accurate picture.

2

Open a Roth IRA if You Don’t Have One

You need a Roth IRA account established before you can convert into it. There’s no waiting period — you can open and convert in the same year. If you have an old 401(k) at a former employer, you may need to roll it to a Traditional IRA first, then convert to Roth.

3

Request the Conversion from Your Custodian

Contact your IRA custodian (Fidelity, Schwab, Vanguard, etc.) and request a direct transfer of the specified amount or assets from your Traditional IRA to your Roth IRA. Direct conversions — same custodian — are cleanest. Cross-custodian conversions involve a 60-day rollover window and withholding rules.

4

Pay the Tax Bill with Non-IRA Funds

Set aside cash from a taxable account, savings, or other outside funds to cover the anticipated tax liability. Consider making an estimated tax payment (IRS Form 1040-ES) in the quarter of the conversion to avoid underpayment penalties — especially if the conversion is large.

5

Report on Your Tax Return

Your custodian will issue a Form 1099-R (showing the distribution from the Traditional IRA) and a Form 5498 (confirming the Roth IRA contribution). Report the conversion on Form 1040, Schedule 1, and IRS Form 8606 (Nondeductible IRAs). If you have a basis in your Traditional IRA from nondeductible contributions, Form 8606 prevents you from paying tax twice.

6

Invest and Let It Grow

Once inside the Roth, ensure the funds are invested appropriately for your time horizon. A common mistake: leaving converted funds in cash inside the Roth, which wastes the tax-free compounding benefit. Reinvest according to your investment policy statement.

📋 Backdoor Roth IRA: If your income is too high for direct Roth contributions, the “backdoor Roth” strategy involves making a nondeductible Traditional IRA contribution and immediately converting it to Roth. This is perfectly legal but requires careful attention to the “pro-rata rule” if you have other Traditional IRA balances. Ask your CFP® to model this before proceeding.

Frequently Asked Questions

Common questions about Roth IRA conversions, answered from a CFP® perspective.

No. There is no income limit on Roth IRA conversions. Anyone with a Traditional IRA, SEP IRA, SIMPLE IRA, or eligible employer plan can convert — regardless of how much they earn. This is different from direct Roth IRA contributions, which phase out at higher income levels. High-income earners who cannot contribute directly to a Roth often use conversions (including the “backdoor Roth” strategy) as their primary path to Roth savings.
Yes. You can convert any amount you choose — a partial conversion is not only allowed, it’s often the best strategy. Many planners recommend converting only enough each year to “fill up” your current tax bracket without pushing into the next one. This approach, known as bracket management, spreads the tax cost over multiple years and keeps the marginal rate on the conversion as low as possible.
There are actually two five-year rules for Roth IRAs. The first applies to the account itself: Roth IRA earnings cannot be withdrawn tax-free until the account has been open for at least five years AND you are age 59½ or older. The second applies specifically to conversions: converted principal is subject to a 10% early withdrawal penalty if withdrawn within five years of conversion, unless you are age 59½ or older. Each conversion starts its own five-year clock. If you’re already 59½ or older, the five-year rule for conversions generally doesn’t apply to the principal (though the earnings rule still requires the account to be five years old).
Medicare uses Income-Related Monthly Adjustment Amounts (IRMAA) to determine Part B and Part D premiums, based on your Modified Adjusted Gross Income (MAGI) from two years prior. A large Roth conversion can push your MAGI above IRMAA thresholds, resulting in higher Medicare premiums for the following two years. In 2026, the standard Part B premium is $202.90/month, but IRMAA surcharges can push this to nearly $700/month. This doesn’t mean you should avoid conversions — it means you need to model the IRMAA impact as part of your total cost-benefit analysis. In some cases, spreading conversions over more years to stay below the lowest IRMAA threshold is the optimal strategy. Refer to Medicare IRMMA thresholds and tables for current premiums and income limits.
Possibly, but you need to model it carefully. Social Security benefits become taxable when your combined income exceeds $25,000 (single) or $32,000 (MFJ). Once you exceed $44,000 (MFJ), up to 85% of benefits are taxable. Adding conversion income on top of Social Security can create an effective marginal rate that is much higher than your nominal bracket — often called the “Social Security tax torpedo.” A CFP® can calculate the precise marginal rate on each dollar of conversion income to identify whether a partial conversion still makes sense or whether the effective rate makes converting unattractive. You may also want to talk with you tax preparer for assistance.
No. The Tax Cuts and Jobs Act of 2017 permanently eliminated the ability to “recharacterize” (undo) a Roth IRA conversion, effective for conversions made after December 31, 2017. Before 2018, investors could reverse a conversion if the market declined after converting, effectively eliminating the tax liability on the lost value. That option no longer exists. This is why it’s so important to model conversions carefully before executing — and why many advisors prefer to convert depressed assets or lower-valued accounts, since the conversion tax is based on the value at the time of conversion.
A surviving spouse can roll the Roth IRA into their own Roth IRA, treating it as their own — including no RMDs during their lifetime and continued tax-free growth. Non-spouse beneficiaries (children, other individuals) must generally empty the inherited Roth IRA within 10 years under the SECURE Act. Unlike an inherited Traditional IRA — where every withdrawal is taxed as ordinary income — withdrawals from an inherited Roth IRA are completely tax-free, provided the five-year rule for the original account is satisfied. This makes the Roth IRA one of the most valuable assets you can pass to the next generation.
They are related but not identical. A Roth conversion is the broad term for moving any pre-tax IRA money into a Roth IRA, regardless of income level or source. A “backdoor Roth IRA” is a specific strategy for high-income earners who exceed the direct Roth contribution income limits: they make a nondeductible (after-tax) contribution to a Traditional IRA, then immediately convert that to a Roth IRA. Because the contribution was after-tax, the conversion is typically tax-free (except for any growth between contribution and conversion). The backdoor Roth is technically a two-step conversion — but the term “Roth conversion” is broader and applies to any conversion of pre-tax funds.
The annual conversion amount depends on your specific situation: your current taxable income, your target bracket ceiling, the size of your Traditional IRA, your expected future income (Social Security, pensions, RMDs), your time horizon, your estate goals, and state tax implications. A common approach is “bracket filling” — converting enough each year to bring your taxable income up to (but not over) the top of your current bracket. A multi-year Roth conversion plan modeled by a CFP® or other investment professional, such as your CPA, can dramatically improve the outcome compared to converting arbitrarily.
General Disclaimer: This content is provided by Fairvoy Private Wealth for educational purposes only and does not constitute personalized tax, legal, or investment advice. Tax laws are subject to change. Roth conversion strategies involve complex tax considerations that vary by individual circumstances. Please consult with a qualified tax advisor and CERTIFIED FINANCIAL PLANNER™ professional before implementing any conversion strategy. The projections and examples on this page are hypothetical illustrations and are not guarantees of future results. Fairvoy Private Wealth is a registered investment advisor. Registration does not imply a certain level of skill or training.

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