Is a Roth Conversion Right for You? What to Weigh Before You Decide

A Roth conversion means moving money from a pretax account, a traditional IRA or old 401(k), into a Roth IRA. You pay ordinary income tax on the amount converted in the year you convert it, and from that point forward the money grows and can be withdrawn tax-free in retirement, as long as the account has been open at least five years and you meet the age or exception requirements. There's no income limit on conversions, which is why they're often used by higher earners who can't contribute to a Roth directly.

What actually makes a conversion worthwhile

• Your current tax bracket versus your expected future bracket: Converting makes the most sense when you expect to be in the same or a higher tax bracket later, for example in early retirement before Social Security and required minimum distributions begin, when income is temporarily lower.

• Where the tax bill gets paid from: Paying the conversion tax from outside funds, rather than withholding it from the IRA itself, preserves more money inside the tax-advantaged account and generally produces a better long-term outcome.

• Medicare and health insurance premium effects: A large conversion can temporarily increase income enough to trigger IRMAA surcharges on Medicare premiums two years later, or reduce ACA marketplace subsidies in years before Medicare eligibility. This is one of the most common reasons a conversion that looks good on paper turns out to be poorly timed.Estate planning considerations: Roth IRAs have no required minimum distributions for the original owner, and they can be a more favorable asset to leave to heirs, particularly if the heirs are in a higher tax bracket than you are.

• State tax considerations: If you're planning to move to a state with no income tax, timing a conversion after the move, rather than before, can meaningfully change the tax cost.

None of this reduces to a simple yes or no in the abstract. It depends on your specific tax bracket this year and in future years, what other income sources you have, your health insurance situation, and your goals for what happens to the account after you're gone. This is exactly the kind of decision worth running an actual projection on before converting anything.