Should You Do a Roth Conversion?
Calculate the tax cost of converting Traditional IRA/401k to Roth. See break-even year and long-term savings.
What Is a Roth Conversion?
A Roth conversion moves money from a Traditional IRA or 401k to a Roth IRA. You pay income tax on the converted amount now, but all future growth and withdrawals are tax-free. The key question: is it better to pay tax now or later? If your current tax rate is lower than your expected retirement rate, converting now saves money. Even at the same rate, Roth has advantages: no Required Minimum Distributions (RMDs) and tax-free inheritance.
The Best Times to Convert
Low-income years: Early retirement before Social Security starts, sabbatical year, or business downturn — convert in the lower bracket. Market downturns: Convert when your portfolio is down — you pay less tax and get more shares into the Roth. Before RMDs start (age 73): Reduce your Traditional IRA balance to lower future RMDs and avoid higher tax brackets.
The "Roth conversion ladder" is a key early retirement strategy: retire, live off taxable savings for 5 years while converting Traditional to Roth at low tax rates (filling the 10-12% brackets), then access the converted funds tax-free. This legally minimizes lifetime tax burden for early retirees.
