April 04, 2025

How to Know When It’s the Right Time for a Roth Conversion

Let’s be honest — ‘Roth conversion’ sounds like something only financial planners and nerds get giddy about. But if you’re serious about maximizing tax efficiency in retirement, it’s a strategy you should absolutely have on your radar.

Done right, a Roth conversion can unlock decades of tax-free growth and tax-free income. Done poorly — or at the wrong time — it could cost you far more in taxes than necessary. So, the big question is: how do you know when the timing is right?

What Is a Roth Conversion, Anyway?

A Roth conversion is simply the process of moving money from a tax-deferred account (like a traditional IRA or 401(k)) into a Roth IRA or Roth 401(k).

Yes, you’ll owe income tax on the amount you convert. But here’s the kicker: once it's in the Roth, the account grows tax-free forever — and you’ll never owe taxes on qualified withdrawals in retirement.

It's like paying taxes on the seed so you can harvest the fruit forever, tax-free.

Timing Triggers That Can Make a Roth Conversion a No-Brainer

1. You’re in a Lower Tax Bracket Than Usual

Let me say this clearly: never let a low-tax year go to waste.

If your income is unusually low this year — due to retirement, a business downturn, a sabbatical, or even a strategic pause — this could be a golden opportunity. Why? Because the IRS taxes Roth conversions at your current income level. The lower your income, the less tax you’ll owe on the conversion.

Real-Life Example:

One of our clients, a business owner, had a tough year. His S-Corp faced high expenses and lower revenue. His initial reaction? Frustration. But after some proactive tax planning, we realized he was in a much lower tax bracket than usual. We helped him convert a large portion of his IRA to a Roth, and he paid significantly less in taxes than he would have in a normal income year. The cherry on top? That money is now compounding tax-free for life.

2. Markets Are Down (And That’s a Good Thing — For Once)

Market volatility isn’t fun, but it can work in your favor. When account values are temporarily down, you can convert more shares for less tax.

Let’s say your traditional IRA started the year at $100,000, but a downturn drops it to $80,000. If you convert now, you’re only taxed on the $80,000 — not the $100,000. And when the market recovers (as history shows it eventually does), all that recovery growth happens inside your Roth — completely tax-free.

Market dips aren’t fun emotionally, but for Roth conversions? They’re prime time.

3. You’re Nearing RMD Age

If you’re approaching required minimum distribution (RMD) age , Roth conversions can help reduce your future RMDs and the tax hit that comes with them. Roth IRAs have no RMDs during your lifetime — so converting before you’re forced to withdraw can keep more of your money growing tax-free and give you more control over your retirement income.

4. You’re Retired But Haven’t Claimed Social Security Yet

Retiring in your early 60s and delaying Social Security creates what we call a “tax valley” — a few low-income years before benefits begin. These years are ideal for partial Roth conversions, especially if you have cash or after-tax investments to live on. By taking advantage of these lower-income years, you can shift money into a Roth at lower tax rates, maximizing your tax-free growth.

5. You’re Planning to Leave Assets to Heirs in a Higher Tax Bracket

Thanks to the SECURE Act, most non-spouse beneficiaries — like your kids! — must empty inherited IRAs within 10 years and pay taxes on the distributions. But inherited Roth IRAs? They’re still tax-free! So if your kids or other heirs will likely be in higher tax brackets than you are now, converting to a Roth can save them a fortune in taxes later.

Key Considerations Before You Convert

1. Can You Pay the Tax Bill Without Raiding Your IRA?

This one’s critical. You’ll owe income tax on the amount you convert, and ideally, you should pay that tax from outside your retirement accounts.

Why? Because pulling money from your IRA to pay the tax not only reduces your retirement nest egg, but also increases your taxable income, which can make the whole strategy self-defeating.

If you don’t have the cash on hand to cover the tax, pump the brakes. The timing may not be right just yet.

2. Does Your 401(k) Allow In-Plan Roth Conversions?

Many people don’t realize this, but you don’t have to wait until you leave your job to do a Roth conversion. If you have a traditional 401(k), your plan might allow an in-plan Roth conversion, allowing you to move part of your vested balance from the traditional “bucket” to the Roth “bucket” within the same account.

Check with your plan administrator to see if this option is available, but be prepared to pay the tax, just as you would with an IRA conversion.

3. Will a Conversion Push You Into a Higher Bracket or Trigger Other Taxes?

This is where precision matters. A Roth conversion can inadvertently push you into:

A higher federal tax bracket
Medicare IRMAA surcharges (higher premiums for Parts B & D)
Increased taxation on Social Security benefits
Phaseouts of deductions, credits, or other AGI-sensitive benefits
A higher tax rate on capital gains

We help clients carefully “fill up” their current tax bracket with conversions without spilling over into unintended tax consequences.

4. Are You Charitably Inclined? (Think QCDs vs. Roth)

If charitable giving is a big part of your retirement plan, you may want to leave some assets in your traditional IRA and use Qualified Charitable Distributions (QCDs) starting at age 70½. These donations count toward your RMDs and aren’t included in your taxable income.

In this case, a hybrid strategy — converting some to Roth while preserving some for QCDs — can offer you the best of both worlds.

Final Thought: “Good” vs. “Great” Roth Conversions

Here’s the deal: Roth conversions can be a powerful planning tool, but the magic is in the timing. The right year, the right market environment, and the right tax bracket can make the difference between a “pretty good” move and a generational wealth-building play.

If you’re wondering whether now is the right time to convert, don’t guess. This is where expert planning pays off.

Let’s take a detailed look at your situation — income, taxes, goals, and long-term plan — and help you decide if a Roth conversion should be a part of your strategy this year.