Should You Convert to a Roth in Retirement? What Actually Changes

What a Roth conversion is and when people do it

A Roth conversion means moving money from a traditional retirement account — usually a traditional IRA or a 401(k) — into a Roth IRA. You pay income tax on the amount you convert in that tax year, but once the money is in the Roth, you never pay tax on it again, and you can withdraw it tax-free in retirement.

People in retirement consider conversions for different reasons. Some have more money in traditional accounts than they need to spend, so they convert part of it to reduce what they're forced to withdraw later. Others convert to lock in a lower tax rate now, betting that their rate will be higher when they eventually withdraw. Some convert to leave more money to heirs without the tax burden, or to reduce the taxes that trigger higher Medicare premiums.

The conversion itself is straightforward: you instruct your IRA custodian or plan administrator to move the money, you report it on your tax return that year, and you pay the tax bill. The hard part is deciding whether it makes sense for your specific situation, because the tax consequences ripple forward for years.

Key Takeaways

• A Roth conversion lets you move money from a traditional IRA or 401(k) into a Roth IRA, pay tax on it once, and then withdraw it tax-free forever.
• Converting can lower your required withdrawals later, reduce your taxable income in high-earning years, and leave more money to heirs, but it costs you money upfront in taxes.
• The conversion itself is simple, but whether it saves you money depends on your current tax rate, your expected future rate, your life expectancy, and your other income sources.
• Converting triggers tax on the full amount that year, which can push you into a higher tax bracket and increase what you pay for Medicare premiums if you're on Medicare.
• You have until the tax deadline to undo a conversion if you change your mind, though the rules for this have tightened in recent years.

The tax cost of converting now versus later

When you convert, you owe federal income tax on the full amount in the year you convert. If you convert $50,000, you add $50,000 to your taxable income that year. That means you might jump into a higher tax bracket, and you pay tax at that higher rate on the converted amount.

The bet you're making is that paying tax now at your current rate is better than paying tax later at a higher rate. If you're retired and in a low tax bracket — maybe because you're not working and your only income is Social Security and a small pension — converting at 12% or 22% might make sense if you expect to be in the 24% or 32% bracket later. But if you're already in a high bracket, or if you'll be in the same bracket in the future, the conversion costs you money.

This calculation changes if tax rates themselves change. Tax rates are set by Congress and have changed many times. If you believe rates will rise in the future, converting now at today's rates saves you money. If you think rates will fall, converting costs you money. Nobody knows what Congress will do, so this is an educated guess at best.

How conversions affect Medicare premiums and other benefits

If you're on Medicare, the tax you pay on a conversion affects your premiums. Medicare premiums are based on your income from two years ago, using a measure called Modified Adjusted Gross Income (MAGI). A large conversion increases your MAGI, which can push you into a higher premium bracket. You might pay an extra $50 to $300 per month in Part B and Part D premiums, depending on your income level.

This effect lasts for two years. If you convert in 2024, your 2024 income affects your 2026 Medicare premiums. That means the true cost of the conversion includes not just the federal income tax, but also the Medicare premium increase.

Conversions can also affect other benefits. If you receive Social Security, a conversion might push more of your benefits into the taxable range, meaning you pay tax on up to 85% of your benefits instead of a lower percentage. If you're receiving need-based benefits like Medicaid or subsidized health insurance through the marketplace, a conversion might reduce what you receive. Check your specific situation before converting.

When conversions make the most sense

Conversions work best in specific circumstances. If you had a year with unusually low income — you retired mid-year, took a sabbatical, or had a business loss — you might be in a lower tax bracket than usual. Converting in that year locks in the lower rate. If you're between jobs or between retirement and starting Social Security, a conversion during that gap can be cheaper than converting in a year when you have other income.

Conversions also make sense if you have a long life expectancy ahead and won't need the money for many years. The longer the money sits in the Roth growing tax-free, the more the conversion pays for itself. If you're 55 and expect to live to 95, a conversion might be worth it. If you're 85 and expect to live to 90, it probably isn't.

Some people convert to reduce their required minimum distributions (RMDs) in later years. Once you turn 73, the IRS requires you to withdraw a percentage of your traditional IRA and 401(k) balances each year. Those withdrawals are taxed as income. If you convert some of that money to a Roth before you turn 73, you reduce the balance that triggers RMDs, which means smaller forced withdrawals and lower taxes later.

The downsides and risks of converting

The biggest downside is the immediate tax bill. If you convert $100,000, you might owe $20,000 to $37,000 in federal tax alone, depending on your bracket. That's money out of your pocket in the year you convert. If you have to withdraw money from your accounts to pay the tax, you're converting less than you intended, and you're paying tax on the withdrawal itself.

Converting also locks in today's tax rate. If tax rates fall in the future, you paid more than you needed to. If you convert and then your circumstances change — you get a large inheritance, you win a lawsuit settlement, you have a major medical expense — you're stuck with the tax bill even though your situation is different now.

There's also the risk of converting too much. If you convert a large amount and it turns out you didn't need to, you've paid unnecessary taxes and reduced the money available for your actual retirement spending. Unlike a regular contribution, you can undo a conversion, but only under specific conditions and only if you do it by the tax deadline.

How to undo a conversion if you change your mind

You can reverse a conversion through a process called a recharacterization, but the rules are strict. You must undo the conversion by the tax deadline of the year you converted it — normally April 15 of the following year, or October 15 if you file an extension. You instruct your IRA custodian to move the money back to the traditional IRA, and you file an amended tax return reporting that the conversion didn't happen.

The catch is that you can only recharacterize once per year, and only if you haven't already recharacterized another conversion that same year. If you convert multiple times in one year, you can undo only one of them. Also, if the money has grown or shrunk in value since you converted it, you move back the current value, not the original amount. If it grew, you're giving back more than you converted. If it shrank, you're giving back less.

Recharacterization is useful if you convert and then the market drops sharply, or if your income situation changes and the conversion no longer makes sense. But you have to act quickly — the window closes at the tax deadline.

Questions to ask before you convert

Before you convert, write down the answers to these questions: What is your current tax bracket, and what do you expect it to be in five years and in ten years? How long do you expect to live, and how long will the money sit in the Roth before you need it? Are you on Medicare, and if so, how much will your premiums increase? Do you have the cash to pay the tax bill without withdrawing from retirement accounts? Will the conversion affect any other benefits you receive?

If you can't answer these questions confidently, talk to a tax professional or financial planner who knows your full situation. A conversion that makes sense for one person can be a mistake for another, and the difference often comes down to details that only show up when you look at your complete financial picture.

Frequently Asked Questions

Can I convert part of my IRA and leave the rest untouched?

Yes. You can convert any amount you want, from a small portion to the entire balance. You don't have to convert everything at once. Many people convert a little each year to spread the tax bill across multiple years and stay in a lower bracket.

What happens if I convert and then need the money right away?

You can withdraw converted money from a Roth IRA immediately without penalty, but you still owe the tax on the conversion. If you withdraw the money within five years of converting it, you may owe a 10% penalty on the earnings portion, though there are exceptions for hardship. The tax is due regardless of when you withdraw.

Do I have to convert all my IRAs at once, or can I pick which ones?

You can convert from any of your IRAs individually. However, the IRS treats all your traditional IRAs as one account for tax purposes when calculating how much of the conversion is taxable. If you have both pre-tax and after-tax money across multiple IRAs, the tax calculation gets complicated — talk to a tax professional before converting.

What if I convert and then my income drops the next year?

You still owe tax on the conversion in the year you did it. You can't reduce the tax bill by having lower income the following year. However, if your income drops significantly, you might be able to recharacterize the conversion before the tax deadline and redo it in the lower-income year instead.

Can I convert a 401(k) directly to a Roth, or does it have to go through an IRA first?

Many 401(k) plans allow direct conversions to a Roth IRA. Check with your plan administrator about whether yours does. If it doesn't, you can roll the 401(k) to a traditional IRA first, then convert from there to a Roth. The tax result is the same either way.