What is a Roth conversion, and when does it make sense?

A Roth conversion moves pre-tax savings into a Roth account, so you pay tax now and withdraw tax-free later.

How it works

You move money from a traditional IRA or 401(k) into a Roth IRA. The amount moved counts as ordinary income for that year, so you owe tax on it. Later, qualified withdrawals from the Roth are tax-free.

When it can help

• Your income is lower than usual, for example in the years between retiring and starting Social Security or required withdrawals.
• You expect higher tax rates later.
• You want to leave tax-free money to heirs.

Watch out for the side effects

A conversion raises your income for the year, which can push you over a Medicare IRMAA line two years later, reduce marketplace health subsidies before 65, and increase the taxable share of Social Security. Converting in smaller pieces across several years, staying inside one bracket at a time, is a common way to limit this.

Find your bracket limit → · Check IRMAA lines →

Source: IRS: Roth IRAs.