When planning for their retirement income, many people worry about facing higher taxes during those golden years. As part of the retirement planning process, we want to ensure our clients are always prepared from a tax planning standpoint as well. That’s why we explore strategies like Roth IRA conversions where it makes sense.

A Roth IRA conversion is a tool that can be used to potentially reduce future tax burdens by paying taxes on your retirement account funds at today’s rates, strategically positioning your accounts for tax-free growth and withdrawals later. But it’s important to note that a Roth IRA conversion might not be for everyone—and if you do one, that the timing matters significantly.

Here, you’ll learn exactly what a Roth IRA conversion is, who can benefit from it, and some key strategies to help you minimize taxes while maximizing your retirement wealth.

But first, let’s explain the difference between a traditional IRA and a Roth IRA and the tax consequences of each.

Traditional IRA vs. Roth IRA 

When you fund a Traditional IRA, you get an immediate tax break. The money you put in can be deducted from your taxable income in the year you contribute, thus potentially lowering your taxes in that year. Those dollars then grow tax-deferred. 

By contrast, you fund a Roth IRA with after-tax dollars, so there’s no immediate deduction, but all qualified withdrawals in retirement come out completely tax-free. The trade-off is simply when you pay the IRS—now with a Roth, or later with a Traditional IRA. 

For 2025, contribution limits are identical for both account types: you can put in up to $7,000 in total across all IRAs, or $8,000 if you’re age 50 or older thanks to a $1,000 catch-up allowance. 

Traditional IRA deductibility limits and Roth IRA eligibility

However, it is important to note that deductibility and eligibility depend on your income: If you are covered by a retirement plan at work (such as a 401k), then your traditional IRA deductions begin to phase out when modified AGI exceeds $79,000 (single) or $126,000 (married filing jointly). Once you reach $89,000 of income (single) or $146,000 (married filing jointly), you can no longer deduct IRA contributions.

Contributions to a Roth IRA account start getting phased out at the following income ranges: $150,000–$165,000 (single) or $236,000–$246,000 (married filing jointly). Once you hit the upper threshold of these ranges, you are no longer allowed to make a Roth IRA contribution. (That is, unless you do a backdoor Roth, which we’ll touch on shortly.)

Since your current income will partially dictate what kind of retirement account you can contribute to, it’s essential to evaluate both your present tax bracket and your expected tax rate in retirement to determine which IRA option offers the greatest long-term advantage.

Tax Consequences of Withdrawing Traditional IRA and Roth IRA Funds

When it comes to the distribution phase in retirement, taking money out of a Traditional vs. a Roth IRA has opposite tax results. 

Traditional IRA withdrawals are treated as ordinary income and will raise your taxable income in the year you take them. Starting at age 73, you must also take required minimum distributions (RMDs), which can further push you into higher brackets. Early withdrawals (before 59½) generally face both income tax and a 10 % penalty. 

Roth IRAs flip that script. Because contributions were already taxed, you can always withdraw your principal tax- and penalty-free. Earnings also come out tax-free so long as you’re at least 59½ and the individual conversion or contribution has been in the account for five years. 

Also, Roth IRAs have no RMDs during the owner’s lifetime, giving you maximum flexibility (and an attractive asset to leave heirs). Non-qualified distributions of earnings, however, do trigger taxes and possibly the 10 % penalty. 

What Is a Roth IRA Conversion?

A Roth IRA conversion is the process of moving money from a traditional retirement account into a Roth IRA. When you convert, you pay income taxes on the converted amount in the year you make the conversion. In exchange, that money grows tax-free in the Roth IRA, and you can withdraw it tax-free in retirement.

You can convert funds from several types of accounts, including traditional IRAs, SEP-IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s. The conversion creates a taxable event, meaning the IRS treats the converted amount as ordinary income for that tax year.

Unlike regular Roth IRA contributions, Roth IRA conversions have no income limits or annual contribution restrictions. This makes conversions particularly valuable for high earners who can’t contribute directly to a Roth IRA due to income restrictions.

The converted funds must remain in the Roth IRA for at least five years to avoid early withdrawal penalties, even if you’re over age 59½. Each conversion starts its own five-year clock, so timing multiple conversions requires careful planning.

Why Consider a Roth IRA Conversion?

The primary benefit of converting to a Roth IRA is eliminating future taxes on your retirement savings. Traditional retirement accounts require you to pay taxes when you withdraw money, typically during retirement when you might be in a lower tax bracket. However, tax rates could also be higher in the future, or you might simply enjoy the peace of mind that comes from knowing you won’t have to worry about paying as much taxes in retirement.

Roth IRAs also don’t have required minimum distributions (RMDs) during your lifetime. Traditional IRAs force you to start taking distributions at age 73, whether you need the money or not. This requirement can push you into higher tax brackets and reduce your control over your tax situation.

Doing a Roth IRA conversion may also provide you with more flexibility in retirement planning. If you have both traditional and Roth IRA accounts, you can strategically choose which accounts to withdraw from based on your annual income needs and tax situation. 

Roth IRAs as an Estate Planning Tool

Additionally, Roth IRAs offer some notable estate planning benefits. When someone inherits a Roth IRA, the distribution rules vary based on whether they’re a spouse or a non-spouse. In most cases, non-spouse beneficiaries must withdraw the full account balance within 10 years of the owner’s death. Spouses, on the other hand, have greater flexibility: they can roll the inherited Roth IRA into their own account or treat it as their own, allowing for continued tax-free growth.

Inheriting a Traditional IRA forces heirs to take taxable distributions, potentially during their peak earning years. This means they could lose a significant chunk of their inheritance to taxes.

Also, because Roth IRAs don’t require minimum distributions during your lifetime, they allow for the possibility of tax-free growth for many years. So if you fall in the camp of not needing money from your retirement accounts (perhaps because you have a great pension), you can let your Roth IRA grow tax-free for your heirs.

Who Should Consider a Roth IRA Conversion?

Roth conversions work best for those who expect to be in the same or higher tax bracket in retirement. If you’re currently in a low tax bracket due to reduced income, unemployment, or early retirement, converting during these lower-income years can be a great idea to set yourself up for your retirement years.

Those with substantial traditional retirement account balances should consider conversions to manage future RMD requirements. Large traditional account balances can force significant RMDs that push retirees into higher tax brackets. Converting portions of these accounts over several years can reduce future RMD amounts.

If you’re planning to leave money to heirs, a Roth IRA conversion can also be attractive because tax-free Roth inheritances are more valuable than traditional account inheritances that force heirs to pay taxes on distributions.

If you earn too much to be able to contribute to a Roth IRA directly, you can also benefit from a Roth IRA conversion, which still allows you to put money into a Roth IRA and benefit from tax-free growth. There’s also what’s known as the “backdoor Roth conversion” strategy that we’ll touch on next…

What is a Backdoor Roth Conversion and Who Should Use It?

As noted above, if your income is above the current Roth IRA income limits, you can’t contribute directly to a Roth IRA. A backdoor Roth conversion is a strategy that allows high-income earners to get money into Roth IRAs despite income restrictions on direct contributions. 

So how do you do it?

Since you can’t contribute to a Roth IRA directly, you make a non-deductible contribution to a traditional IRA instead and then immediately convert that contribution to a Roth IRA. Since you already paid taxes on the contributed money, the conversion typically results in little to no additional tax liability.

This strategy works because there are no income limits on IRA conversions, only on direct Roth IRA contributions.

The backdoor Roth conversion requires careful execution, however. You’ll need to properly report the non-deductible contribution and conversion on your tax returns, and be aware of the pro-rata rule if you have other traditional IRA balances. This is why it’s best to plan ahead with a financial advisor and consult your tax advisor before attempting to execute this strategy on your own.

The Pro-Rata Rule: A Critical Consideration in a Backdoor Roth Conversion

The pro-rata rule is important to keep in mind if you want to execute a backdoor Roth conversion strategy. This rule requires you to consider all your traditional IRA balances when calculating the taxable portion of any conversion—not just the after-tax balances.

Here’s how it works: if you have $90,000 in deductible traditional IRA contributions and $10,000 in non-deductible contributions, any conversion will be treated as 90% taxable and 10% non-taxable, regardless of which specific dollars you convert. You can’t cherry-pick the non-deductible contributions for conversion.

Many people overlook the pro-rata rule and accidentally create larger tax bills than expected. Before executing any conversion strategy, you need to account for all your traditional IRA balances and plan accordingly.

When to Convert to Roth IRA

The best time to convert really depends on your tax bracket now versus what you expect it to be in the future. In general, it makes the most sense to convert when you’re in a lower tax bracket today—but as you’ll see, there are a few other smart times to consider a Roth IRA conversion.

During Low-Income Years or Major Life Changes
If you’ve had a dip in income—maybe you left a job, started a business, got divorced, or retired early—those “gap years” could be the perfect time to convert. You’ll likely be in a lower bracket and can take advantage of that before your income bounces back or Social Security kicks in.

Early in Your Career
If you’re just starting out and not earning a ton yet, converting whatever retirement savings you have now might mean paying less in taxes than you would later. And with decades ahead of you, that converted money gets years of tax-free growth inside the Roth.

After the Market Drops
When markets dip, it’s like a Roth conversion sale. You can move over more shares while they’re temporarily down and let them grow tax-free when they recover. Just make sure you’re not letting market timing override smart financial planning.

If You Have the Cash to Cover Taxes
A key part of this strategy is paying the taxes from your bank account—not from your retirement savings. If you use the IRA itself to pay the tax bill, it cuts into your long-term growth and might even trigger penalties if you’re under 59½.

Spreading It Out Over Time
You don’t have to convert everything in one shot. Doing smaller conversions over several years can help you stay in a lower tax bracket and avoid a big surprise tax bill. It’s about filling up the lower brackets without tipping into a higher one.

Pairing With Other Tax Strategies
If you’re already doing things like tax-loss harvesting or have big deductions in a certain year, that might be the ideal time to convert. The more you can offset the added income from a conversion, the less you’ll owe.

How to Execute a Roth IRA Conversion

Converting to a Roth IRA is relatively straightforward from a mechanical standpoint, but the tax planning requires careful consideration. You can convert funds through your IRA custodian by requesting a conversion, and most major financial institutions can handle this process efficiently.

Your IRA custodian will send you Form 1099-R showing the distribution from your traditional IRA, and you’ll report the conversion income on your tax return. If you made non-deductible IRA contributions, you’ll also need to file Form 8606 to track your basis.

If you’re converting funds from an employer-sponsored plan like a 401(k), you’ll first need to initiate a rollover to a Roth IRA—either directly (to avoid withholding) or indirectly within 60 days. Make sure you’re eligible for a distribution, typically after leaving the employer or reaching age 59½, unless your plan allows in-service rollovers.

The timing of your conversion within the tax year matters for cash flow planning, but not for tax purposes. Whether you convert in January or December, the entire conversion amount counts as income for that tax year. 

Making the Right Decision for Your Situation

A Roth IRA conversion can be a powerful tool for retirement planning, but it’s not automatically beneficial for everyone. The decision depends on your current tax bracket, future expectations, available cash to pay taxes, and overall financial goals.

The key is running the numbers for your specific situation and considering both the immediate tax cost and long-term benefits. 

Need help deciding if a Roth IRA conversion is right for you? 

Schedule a complimentary call with one of our financial advisors in Tampa and throughout the US to walk you through your options.

Disclosure :Jaffe Tilchin Investment Partners is a Registered Investment Advisor. Certain representatives of Jaffe Tilchin Investment Partners are also Registered Representatives offering securities through APW Capital, Inc., Member FINRA/SIPC. 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866 (800)637-3211 Check the background of this firm on FINRA’s BrokerCheck