The Right Time To Convert Money Into a Roth Account

When a Roth conversion makes sense for your situation

A Roth conversion works best when your tax rate today is lower than you expect it to be in retirement, or when you have years left before you need to withdraw the money. The timing depends on three things: your current income, how much you have in traditional retirement accounts, and when you plan to retire.

If you are in a low-income year—between jobs, taking unpaid leave, or recently retired—that year is often the best time to convert. You pay tax on the conversion at your current rate, which is lower than it might be later. If you are still working and earning a high salary, converting now means paying tax at your highest bracket, which usually does not make sense unless you have other reasons to do it.

The other key factor is time. Money you convert has years to grow tax-free before you touch it. If you convert at 45 and do not withdraw until 72, that conversion has 27 years to compound without tax drag. If you convert at 70 and retire at 72, you get almost no growth benefit, and you may have paid tax for no reason.

Key Takeaways

• Convert during a year when your income is unusually low—between jobs, after retirement, or in a sabbatical year—because you will pay tax at a lower rate than in high-income years.
• Avoid converting in years when you are still working at full salary, because the conversion adds to your taxable income and pushes you into a higher tax bracket.
• The longer the money sits in a Roth after conversion, the more tax-free growth you capture, so earlier conversions usually beat later ones if the tax cost is the same.
• If you expect tax rates to rise in the future, converting now at today's rates locks in a lower tax bill than you would pay on withdrawals later.
• Check your state income tax situation, because some states tax Roth conversions and others do not, which can change whether a conversion is worth doing.

The low-income year window

The single best time to convert is a year when your income drops sharply. This includes the year you leave your job, the year you retire, a year you take unpaid leave, or a year you have unusually low business income. In that year, you have unused tax brackets—room to add income without jumping to a higher rate.

Example: You earn $120,000 most years and are in the 22% federal tax bracket. In the year you retire, you have no job income and only $30,000 in Social Security and pension. You now have roughly $70,000 of room in the 22% bracket before you hit the 24% bracket. Converting $70,000 from a traditional IRA to a Roth costs you $15,400 in federal tax (22% of $70,000), but that money then grows tax-free forever. If you had waited to convert during a working year, you would have paid 24% or higher.

The key is knowing your tax bracket for that year before you convert. Your tax bracket depends on your filing status, your other income, and your deductions. If you are unsure, a tax professional can run the numbers and tell you exactly how much you can convert without jumping to the next bracket.

Years when you should avoid converting

Do not convert in years when you are earning peak income—either because you are still working full-time or because you had a bonus, a business windfall, or a large capital gain. In those years, your tax brackets are already full, and a conversion pushes you into higher rates.

You should also avoid converting in a year when you are claiming means-tested benefits. Some conversions can raise your Modified Adjusted Gross Income (MAGI), which affects whether you may have access to for Medicare subsidies, Medicaid, or other programs. The tax you pay on the conversion might be offset by losing benefits worth more than the tax savings.

Similarly, if you are in the year you claim Social Security, be cautious. A large conversion can push more of your Social Security into taxable income, which means you end up paying tax on both the conversion and the Social Security. This is called the "taxation of benefits" rule, and it can make a conversion much more expensive than it first appears.

The time-horizon question

The longer you have until you need the money, the stronger the case for converting. A conversion at age 40 has 25+ years to grow tax-free. A conversion at age 68 has only a few years. The tax you pay upfront is the same either way, but the growth benefit is much larger when you have time.

This is why financial advisors often recommend converting early in retirement or even before retirement if you have a low-income year. You are paying tax today to buy decades of tax-free growth. If you convert at 70 and withdraw at 72, you paid tax for almost no benefit.

One exception: if you know you will need the money within a few years anyway, converting does not make sense. You would pay tax on the conversion and then immediately withdraw it, getting no growth benefit at all. In that case, keep the money in a traditional account and withdraw it when you need it.

Tax rate expectations and future planning

If you believe tax rates will be higher in the future than they are today, that is a reason to convert now. You lock in today's rate and avoid paying a higher rate on withdrawals later. This is a judgment call—nobody knows what Congress will do—but it is a legitimate reason to convert even in a year when your income is not unusually low.

The opposite is also true: if you expect to be in a much lower tax bracket in retirement than you are now, converting may not make sense. If you are currently in the 24% bracket but expect to be in the 12% bracket in retirement, you would be paying 24% tax today to avoid 12% tax later—a bad trade.

Your tax bracket in retirement depends on how much you will withdraw from retirement accounts, how much you will have in Social Security, and whether you will have other income like rental property or part-time work. If you can estimate that, you can compare today's rate to your expected retirement rate and decide whether converting makes sense.

State income tax considerations

Some states tax Roth conversions as ordinary income, and others do not. If you live in a state with no income tax—like Florida, Texas, or Wyoming—a conversion costs you only federal tax. If you live in a high-tax state like California or New York, the state tax on a conversion can be substantial and might tip the decision against converting.

A few states have special rules. For example, some states do not tax retirement income at all, even if you are still working, which can create a window where converting is especially cheap. Other states tax conversions but not withdrawals from traditional accounts, which reverses the usual math.

Before you convert, check your state's rules or ask a tax professional. The state tax can easily add 5% to 10% to the cost of a conversion, which changes whether it is worth doing.

Converting before required minimum distributions start

Once you reach age 73 (as of 2023), you must take required minimum distributions (RMDs) from traditional IRAs and most employer plans. Those distributions are taxed as ordinary income, and they can push you into a higher tax bracket or affect your Medicare premiums and Social Security taxation.

Converting before RMDs start gives you control over how much income you recognize each year. If you convert $100,000 at age 65, you pay tax on it then. But you avoid having the IRS force you to withdraw $100,000 at age 75 when you might not need it and when it would trigger higher taxes. This is one reason financial advisors often recommend converting in the years between retirement and age 73.

You cannot convert money that is subject to an RMD in the same year—the IRS requires you to take the RMD first. But you can convert the rest of your balance, which gives you some control over your tax situation.

Frequently Asked Questions

Is there a best age to do a Roth conversion?

There is no single best age, but the years between retirement and age 73 are often ideal because your income is usually lower and you have time for growth before you must take withdrawals. The best age for you depends on when your income dips and how long you expect to live.

Can I convert if I am still working?

Yes, but it usually costs more in taxes because your income is higher. You would be paying a higher tax rate on the conversion than you would in a low-income year. It can still make sense if you expect tax rates to rise significantly or if you have other reasons to do it, but most people wait until they retire or have a low-income year.

What happens if I convert and then need the money back?

You can undo a conversion by doing a "recharacterization," but only within certain time limits and only if your plan allows it. The rules are strict, so do not count on being able to reverse a conversion. Treat it as permanent when you decide to do it.

Does a Roth conversion affect my Social Security taxes?

Yes. A conversion increases your income for the year, which can push more of your Social Security into taxable income under the "taxation of benefits" rule. This can make a conversion much more expensive than the federal tax alone suggests. Run the numbers with a tax professional if you are claiming Social Security.

Should I convert all my traditional IRA at once or spread it over several years?

Spreading conversions over multiple years usually costs less in taxes because you stay in lower brackets longer. But it depends on your income in each year and your tax bracket. A tax professional can model both approaches and tell you which costs less.