Roth Conversions: How to Do It Without Getting a Tax Shock

A Roth conversion can create tax-free retirement income, but careful timing and tax planning are essential.

Published: 5/28/2026, 9:55:18 AM EDT

Roth Conversions: How to Do It Without Getting a Tax Shock — Done carefully, a Roth conversion can boost tax-free retirement income and reduce future tax burdens. (zimmytws/Shutterstock)

The idea of tax-free withdrawals from a retirement account can be very enticing. And you can accomplish that with a Roth IRA.

But you may have been saving for most of your working years in a traditional IRA. After all, these savings vehicles allow you to make tax-deductible contributions.

But through a Roth conversion, you may transfer traditional IRA funds into a Roth IRA and enjoy its benefits as long as you follow the rules. However, this move can be very risky and backfire if you’re not careful. So today, we’re going to explore how to best approach a Roth conversion. But first, let’s start with some basics.

What Is a Roth Conversion?

A Roth conversion moves funds from a traditional IRA into a Roth IRA. You can generally transfer as much as you want into the Roth account. However, you’d owe ordinary income taxes on the amount converted.

But there are ways to strategically engage in a Roth conversion in order to minimize the tax impact.

Make Staggered Conversions

Remember, you don’t need to convert the entire balance of your traditional IRA into a Roth IRA. In fact, this may raise some issues. The converted amount would be considered taxable income. So if the converted amount is large enough, it may push you into a higher tax bracket.

It could also trigger a surcharge on the premiums you pay for Medicare Part B and Part D. This is known as the income-related monthly adjustment amount. And if you’re collecting Social Security, a Roth conversion could also trigger taxes on your benefits.

But you can manage the taxation of a Roth conversion by making partial conversions over time. Some advisers recommend you convert enough in a given year to maximize your tax bracket, but not enough to push you into a higher one.

So suppose you make $150,000 a year and are therefore in the 24 percent tax bracket for 2026. You won’t cross into the next bracket until your income goes above $201,775. So you can convert the difference, or $51,775, and remain in your current tax bracket.

Take Advantage of the Sweet Spot

Some advisers recommend performing a Roth conversion during the “sweet spot.” This is generally considered to be the time between early retirement, but before you reach the required minimum distribution (RMD) age and before you begin collecting Social Security benefits. This is the time when your income would theoretically be low. So taxes on the conversion could be minimal.

This move could also help you reduce future RMDs or eliminate them altogether. RMDs are minimum amounts of withdrawals most people saving in a tax-deferred account such as a traditional IRA must make every year once they reach age 73.

Because RMDs are treated as taxable income, they could trigger Social Security taxation and higher Medicare premiums, as well as push you into a higher tax bracket.

Moreover, Roth IRAs don’t involve RMDs.

Consider Converting During Market Downturns

If you engage in a Roth conversion when your traditional IRA portfolio takes a hit, you are essentially moving a smaller amount of funds to the Roth account. This could minimize the tax impact of a conversion.

Be Aware of the 5-Year Rule

In order to avoid the 10 percent early withdrawal penalty and taxes on the withdrawal of earnings from a Roth IRA, you must meet two conditions. First, you must be at least 59 1/2 years old.

And you must wait a five-year holding period before withdrawing any converted balances. This is known as the five-year rule. And it applies separately to each conversion.

And you should also note that the five-year rule kicks in January of the year you made the conversion.

Pay the Taxes With Outside Money

You may want to avoid using money in your traditional IRA to pay taxes on the Roth conversion. You’d owe income taxes on that amount. And it could trigger a 10 percent early withdrawal penalty if you’re under the age of 59 1/2.

Consider the Backdoor Roth IRA

Because of income limits, some high earners may not be allowed to directly contribute to a Roth IRA.

For 2026, you can’t contribute any amount to a Roth IRA if your modified adjusted gross income exceeds $168,000 as a single filer or $252,000 if married and filing jointly.

To get by this, many affluent individuals engage in a strategy called the backdoor Roth IRA. This is the process of converting nondeductible contributions in a traditional IRA to a Roth IRA.

But the tax situation can get complicated if you have any traditional IRAs for which you’ve made tax-deductible contributions into. And the five-year rule applies here too.

So to avoid unexpected tax consequences, you should carefully discuss the pros and cons of a backdoor Roth IRA with a qualified tax adviser.

Be Aware of Tax Laws

Tax laws are constantly changing and these shifts can be significant. So it’s important to brush up on how the latest tax laws may impact your Roth conversion, based on your unique financial situation.

And you should also be aware of any benefits that a Roth conversion may impact. Remember, the converted amount is treated as taxable income. If it’s large enough, it could raise your taxable income to the point where you may not be eligible for Medicaid benefits, student aid and even certain tax credits. But you can work with a financial adviser to structure a series of conversions that may put you below certain income caps that could affect your eligibility for certain benefits.

The Bottom Line

A Roth conversion can give you access to key benefits that come with a Roth IRA. But the move could backfire and trigger serious tax consequences if you don’t proceed with caution. Still, you can consider making partial conversions over time, or doing a conversion when income is low or during market downturns. But timing your conversion and deciding the right amount to convert would be different for everyone based on their financial circumstances and goals. So it can help to discuss these strategies with a qualified tax adviser.

The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.

From The Epoch Times