Roth Conversions: What Retirees Need to Know About Taxes

Nov 6, 2025

A Roth conversion can be one of the most powerful tools in your retirement planning toolkit, but it’s not a decision to take lightly. At its core, a Roth conversion is a straightforward concept: You transfer funds from a pre-tax retirement account (such as a traditional IRA, 401(k), or 403(b)) into a Roth IRA. You pay taxes on the money now, in exchange for tax-free withdrawals, including all the growth, later in retirement.

As with any good tool, knowing when and how to use it makes all the difference. Let’s break down what you need to know about the tax implications of a Roth conversion and how to decide whether it makes sense for you.

A brief history of Roth conversions

While Roth IRAs have been around since 1997, Roth conversions have always been more of a niche strategy. In fact, one study found that from 2003 to 2018, only about 3.9% of IRA holders ever made a conversion.¹

That changed dramatically in 2010, when income limits on conversions were eliminated. In 2009, investors completed about $6 billion in conversions. By 2010, that number had surged to $59 billion — an increase of more than 800%.² This dramatic shift highlights how powerfully tax policy can influence financial decisions.

More recently, conversion activity has tended to spike in response to market or tax conditions. For example, in the first quarter of 2024, conversions saw a notable increase, as many investors took advantage of market fluctuations to convert assets at temporarily lower values.³

The main tax implication: Paying taxes now

Roth conversions may not be the most common strategy, but when the timing is right, they can be very compelling.

The most important thing to remember is that the transfer is a taxable event. Any money you convert counts as ordinary income in the year you move it. That means you’ll owe federal (and possibly state) income tax on the converted amount.

It’s usually best to cover those taxes with money outside your retirement accounts. If you dip into the converted funds to pay the IRS, you’ll shrink your retirement savings. If you’re under 59½, you may face a 10% penalty, as well.

It is also important to pay close attention to your tax bracket. A large one-time conversion could cause you to be bumped into a higher tax bracket. That’s why many retirees spread conversions over several years in a strategy called “tax-bracket management” or “Roth laddering.”

Why consider a Roth conversion?

Considering how tricky the timing can be, why should you consider a Roth conversion? Think of it as a bet on your future tax rate. A Roth conversion may pay off if:

You expect higher taxes later. Whether due to required minimum distributions (RMDs), rising tax rates, or your own income, converting at today’s lower rate could save you money in the long run.
You want tax-free withdrawals. Once your Roth IRA is at least five years old and you are 59½ or older, all withdrawals, contributions, and earnings are completely tax-free. That flexibility can give you more control over your tax picture in retirement.
You’d like to minimize RMDs or required minimum distributions. Traditional IRAs require withdrawals starting at age 73. Roth IRAs don’t. That means your money can continue to grow tax-free for as long as you want.
You want to leave a legacy. Heirs who inherit your Roth IRA can make withdrawals without owing income tax, as long as the account has been open for at least five years.

Key rules to keep in mind

Besides the timing and tax implications, there are a few additional key rules to keep in mind:

No income limits. While income restrictions apply to making Roth IRA contributions, anyone can complete a Roth conversion.
The five-year rule. Each conversion starts its own five-year clock. If you’re under 59½, you’ll need to wait five years to access converted amounts penalty-free.
The pro-rata rule. If your IRAs hold a mix of pre-tax and after-tax dollars, each conversion is treated proportionally. You can’t pick and choose only the after-tax money to convert.
Medicare impact. Conversions increase your Modified Adjusted Gross Income (MAGI), which may trigger higher Medicare Part B and Part D premiums two years later.

Taken together, these rules highlight why Roth conversions require careful planning. While the strategy can offer meaningful long-term benefits, the details matter, especially when it comes to timing, taxes, and how different accounts interact. By understanding these key considerations upfront, you can avoid costly surprises and maximize the benefits of a Roth conversion.

When might be the best time?

A Roth conversion isn’t for everyone, and the right timing depends on your broader retirement plan, your income, and your tax outlook. Done wisely, it can provide lasting tax savings, greater flexibility, and peace of mind knowing more of your retirement income will be tax-free.

Some windows of opportunity make Roth conversions especially attractive:

Low-income years. If your income is unusually low — say, in early retirement before Social Security or pensions kick in — you may pay less in taxes on the conversion.
Market downturns. Converting while account values are lower lets you move more shares at a reduced tax cost. If the market rebounds, those gains will grow tax-free.
Before RMDs begin. Converting funds before age 73 can shrink future RMDs and help manage your long-term tax bill.

Because of the complexities, it’s always smart to run the numbers with a qualified financial advisor and a tax professional. Together, we can help you decide if a Roth conversion fits into your retirement strategy.

Download our Roth Conversion Cheat Sheet for a deeper dive into what you need to know and what questions you should ask.

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