Roth Conversions: The Good and the Bad
- Cory M. Allen, CFP® AIF® CAP® CWS® | Financial Advisor
A Roth conversion occurs when money is moved from a pre-tax retirement account—such as a Traditional IRA or 401(k) into a Roth IRA. When the conversion happens, the amount converted is treated as taxable income in that year. In exchange for paying taxes today, the funds in the Roth IRA can grow tax-free for the rest of your life, and withdrawals in retirement are generally tax-free if certain rules are met.
For many investors, Roth conversions are a powerful planning tool. However, they are not always the right move. Understanding both the advantages and the trade-offs is essential before implementing a strategy.
The Key Benefits of Roth Conversions
- Tax-Free Growth and Withdrawals
Once funds are inside a Roth IRA, future investment growth is not taxed. If the account has been open at least five years and you are age 59½ or older, withdrawals—including earnings—are tax-free.
- Potentially Lower Lifetime Taxes
Roth conversions can make sense when you expect to be in a higher tax bracket later. This may happen if:
- Your income increases later in life
- Tax rates rise in the future
- Required Minimum Distributions push you into higher brackets
By converting in lower-income years, you may lock in a lower tax rate today.
- No Required Minimum Distributions (RMDs)
Unlike traditional IRAs, Roth IRAs do not require distributions during the owner's lifetime. This gives retirees more flexibility in managing taxable income and preserving assets for later years.
- Improved Tax Diversification
Having a mix of tax-deferred, taxable, and tax-free accounts allows retirees to strategically withdraw money each year to control their tax bracket.
- Estate Planning Advantages
Roth IRAs can be attractive for heirs because they inherit tax-free assets. While beneficiaries must still withdraw funds within 10 years under current rules, the withdrawals are generally not taxable.
The Potential Drawbacks
- Immediate Tax Bill
The biggest drawback is that the converted amount is taxed as ordinary income in the year of conversion. A large conversion could:
- Push you into a higher tax bracket
- Increase Medicare premiums (IRMAA)
- Reduce eligibility for certain tax credits or deductions
- Requires Cash to Pay the Taxes
Ideally, taxes on a conversion should be paid with money outside the retirement account. If taxes are paid from the IRA itself, it reduces the amount invested and may trigger penalties if under age 59½.
- Market Timing Risk
If you convert and the market drops soon after, you will have paid tax on a higher value than the account is now worth. Unlike prior law, conversions can no longer be “recharacterized” or undone.
- Not Ideal for Everyone
Roth conversions may not make sense if:
- You expect to be in a lower tax bracket in retirement
- You need the funds in the near future
- The conversion creates unnecessary tax consequences
When Roth Conversions Often Make Sense
Strategic conversions are commonly considered during:
- Early retirement years before Social Security and RMDs begin
- Temporary low-income years
- Down market periods when account values are lower
- Years when deductions or losses reduce taxable income
Many investors implement partial conversions over several years to fill up lower tax brackets without jumping into higher ones.
The Bottom Line
Roth conversions can be a valuable strategy for reducing lifetime taxes, increasing retirement flexibility, and creating tax-free assets for the future. However, the upfront tax cost means they should be evaluated carefully within a broader financial and tax plan.
The most effective strategies typically involve multi-year planning, tax bracket management, and coordination with Social Security, Medicare, and retirement income needs.
Before executing a Roth conversion, it is wise to model the long-term tax impact with a financial planner or tax professional to ensure the strategy aligns with your overall retirement goals.
Tax Prep VS. Tax Strategy: The Difference Matters More than you Think
- Griffin M. Thomas, CPA | Tax Advisor
Tax Prep vs. Tax Strategy: The Difference Matters More Than You Think
If you've already filed your 2025 return, congratulations - you've made it through another tax season! As important as proper tax prep is for that annual April deadline, some also embrace it as part of a broader year-round strategy, which includes reviewing income, investments, and giving opportunities with an eye toward managing lifetime goals.
Tax Preparation vs. Year-Round Tax Awareness
By its nature, tax preparation looks backward. Once a year ends, opportunities to impact that year’s results are limited. The year-round attention we provide looks at past, current, and future income, portfolio structure, and capital gains. This broader awareness does not always produce a refund, but it can sometimes mean making decisions today to get better positioned for the future.
Elements Reviewed Throughout the Year
With taxes touching almost every aspect of your financial life, several areas deserve recurring attention. These are the key components that we typically monitor for opportunities throughout the year.
Income Timing
Some types of income or deductions can be shifted between years, which may help with managing brackets. Not all income is flexible, but items such as bonuses, self-employment income, and certain retirement distributions may allow for timing decisions.1
Tax-Advantaged Investing
Taking advantage of accounts that are designed to manage income and grow tax-deferred can help with long-term liabilities. Here are a few recent changes that we are monitoring as part of your overall tax strategy:
- 401(k) limits rose to $24,500 in 2026, with an $8,000 catch-up contribution.2
- SECURE 2.0 changes require certain high earners over the age of 50 to make catch-up contributions in post-tax Roth IRAs rather than traditional pre-tax IRAs.2
- “Super” catch-up contributions for ages 60 to 63 began in 2025, with a limit of $11,250 for 2026.2
- With most retirement accounts, once you reach age 73, you must begin taking required minimum distributions. Roth accounts are the exception. Withdrawal penalties may apply if you take the money before age 59½. Roth IRA distributions must meet a 5-year holding requirement and occur after the account holder reaches age 59½.
Charitable Giving
Charitable strategies can support the causes you care about while also contributing to tax efficiency. Several One Big Beautiful Bill Act (OBBBA) updates to the tax treatment of giving started in 2026 and may inform our insights.3
- Above-the-line deduction for non-itemizers: raised to $1,000 single or $2,000 joint.
- New Adjusted Gross Income (AGI) floor: Only gifts above 0.5 percent of AGI count for itemizers.
- 35 percent cap on itemized deduction benefits for top-bracket households.
- Qualified Charitable Distributions (QCD) limit rises to $111,000.4
- Bundling deductions may help exceed the standard deduction for itemizers: $16,100 for single filers or $32,200 for joint filers.5
Roth Contributions and Conversions
An important tax strategy we discuss is whether it makes sense to do a Roth conversion. This is when you roll over your retirement account into a Roth IRA. By doing this, you pay taxes upfront but may not be taxed when you take withdrawals later in life. You will be taxed on the amount of the rollover in the year you do it, which can result in a larger-than-expected tax bill, so care must be taken, and we will always weigh the pros and cons with you.6
Tax-Loss Harvesting
Market fluctuations can create chances to use realized losses to offset gains. This involves navigating wash-sale rules and coordinating long-term versus short-term positions. It can be an effective, yet complex undertaking, so we are always on the lookout for opportunities to harvest losses if it makes sense to your overall financial strategy.
Estate and Gift Taxes
The OBBBA sets the exemption at $15 million per person or $30 million for couples, indexed for inflation.7
Only about 1 percent of estates exceed this amount, so most of our clients don’t have to worry about this any longer.8
But tax laws evolve, and even “permanent” rules can be changed by a future Congress and administration. That’s why we keep a close eye on potential tax issues. We also consider state estate taxes that may still apply when developing estate and wealth transfer strategies.
Avoiding Surprises
Throughout the year, we provide consistent attention in several areas to help avoid surprises and unnecessary costs.
- Quarterly estimated tax issues can arise if withholding is insufficient.9
- Withdrawals from some retirement accounts are taxable as income, so our retirement income strategies coordinate the withdrawal sequence to help manage overall liability.10
Bottom Line
Tax preparation captures history. Tax strategy is the year-round attention that, in conjunction with your tax consultant, can shape what comes next and support long-term financial health. As the tax deadline approaches, know that by working with a financial professional, taxes are not a one-day event but a constant consideration to ensure you are positioned well for 2026 and beyond.
If you have any questions or would like to talk with us about your full-year tax strategy, please do not hesitate to reach out. We are here to help.
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1. Affiance Financial, September 5, 2024.
2. BDO USA, November 2025.
3. IRS.gov, December 16, 2025.
4. SilverTaxGroup.com, June 25, 2025.
5. Fidelity Charitable, November 2025.
6. BankRate.com, May 12, 2025.
7. Carlile Patchen & Murphy LLP, July 15, 2025.
8. Tax Shark, June 17, 2025.
9. IRS, November 2025.
10. Jasonfintips.com, October 8, 2025.
