Roth conversions – the financial strategy that lets you pay taxes today, so you don’t have to pay them tomorrow. It’s a powerful way to take control of your retirement savings and potentially save big on taxes down the road. But like any strategy, Roth conversions are not for everyone. In this post, we’ll break down how Roth conversions work, who should consider them, and how to make the most of this tax-smart strategy.

Understanding the Rules of Roth Conversions

Roth IRAs are a popular, tax-efficient retirement account option for many individuals. With their unique tax advantages, Roth IRAs provide the opportunity to grow retirement savings tax-free and avoid future taxes on qualified withdrawals. Typically, qualified withdrawals require the account holder to be over age 59½, and the assets held in the Roth IRA must have been there for at least five years. Unlike Traditional IRAs, Roth IRAs are not subject to Required Minimum Distributions (RMDs), making them a valuable tool for long-term tax planning and wealth transfer.

The simplest way for individuals with an active income to fund a Roth IRA is through direct contributions, which are subject to annual limits ($7,000 in 2025, or $8,000 for those aged 50 and older). For those who don’t have an active income or are seeking to contribute more, Roth conversions offer a strategic alternative. A conversion involves transferring funds from a Traditional IRA to a Roth IRA. The converted amount is considered ordinary income in the year of the conversion, even though the funds are not withdrawn but instead moved into the Roth IRA.

Since the funds are not treated as a distribution, there is no early withdrawal penalty, even if the individual is under age 59½. However, it’s important that the individual has sufficient cash available to cover the tax liability from the conversion.

The IRS treats Roth conversions as taxable events, so they are typically not executed all at once. Instead, conversions are often spread out over several years in partial amounts to manage the tax impact.

For example, if an individual has a Traditional IRA worth $1,000,000, they could convert the full balance in a single year. However, doing so would likely push them into a much higher marginal income tax bracket. To avoid this, financial professionals often recommend converting smaller amounts over multiple years, carefully calibrated to “fill” the individual’s current tax bracket without spilling into a higher one.

Are Roth Conversions Beneficial for Everyone?

Executing a Roth conversion isn’t right for everyone. Since the conversion comes with the “cost” of paying income taxes on the amount converted today, it’s important to assess whether it’s better to pay that cost now or in the future. The decision ultimately depends on an individual’s current tax rate compared to their expected future tax rate when the funds would be withdrawn from the Traditional IRA.

If an individual’s tax rate is the same in the year of the conversion as it would be at the time of future withdrawals—or even lower—there may be little to no tax advantage to doing a Roth conversion. However, if their tax rate is expected to increase in the future, the circumstances shift. Paying taxes through a Roth conversion could result in significant long-term tax savings, compared to paying taxes later at a higher rate in this situation.

Roth conversions can also offer benefits for heirs. Under the SECURE Act 2.0, most non-spouse beneficiaries are now required to fully distribute inherited IRAs within 10 years of the original owner’s death. If the inherited account is a Traditional IRA, the beneficiary must pay taxes on any distributions. However, if it’s a Roth IRA, the distributions are generally tax-free, since taxes were already paid at the time of the conversion/contribution.

If I’m the Right Candidate for Roth Conversions, When Should They Be Executed?

Typically, the best time to execute Roth conversions is during periods of lower household income. For many of our clients, this window occurs between retirement and the start of RMDs (As of 2025, Traditional IRA RMDs begin at age 73 for those born before 1960; Age 75 for those born after). Once retired, income is usually at a much lower level, allowing clients to take advantage of accelerating income through Roth conversions at these lower tax rates.

While we don’t recommend waiting for a market pullback to execute Roth conversions, it can be a bonus if you’re already planning to convert. During a market decline, the value of a Traditional IRA is temporarily lower, allowing you to convert a larger portion to a Roth IRA without pushing yourself into a higher tax bracket. This can help shift more of the account’s future growth to the Roth.

How Should I Proceed with Roth Conversions?

By converting Traditional IRA assets into a Roth IRA, you can take advantage of tax-free growth and withdrawals in retirement, potentially reducing your overall tax burden in the future. However, Roth conversions are not suitable for everyone. Factors such as your current tax bracket, expected future income, and the potential impact on your long-term retirement goals all play a role in determining if a Roth conversion is the right strategy for you. If you have questions on Roth conversions related to your unique situation, reach out your Bartlett advisor to determine if this option aligns with your financial goals.

DISCLOSURE
This material provided by Bartlett Wealth Management (“Bartlett”) is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Opinions expressed by Bartlett are based on economic or market conditions at the time this material was written; actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Bartlett, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.