When to Do a Roth Conversion (and When Not To): A Decision Framework

The Core Question: Will the Investor's Tax Rate Be Higher or Lower Later?

Vanguard's break-even tax rate framework, developed by Boris Wong and Joel Dickson, calculates the future tax rate at which a converted account and an unconverted account would produce the same after-tax withdrawal value. If the investor's expected future rate exceeds the BETR, conversion may potentially be the more efficient choice. Three inputs generally lower the BETR: conversion costs paid from outside the IRA, a longer holding horizon, and existing basis inside the IRA.

The conversion tax is generally immediate and certain. The future benefit is probabilistic. Most investors are choosing between a known cost today and an uncertain benefit fifteen or twenty years out. That asymmetry is one reason many investors who would potentially benefit from converting delay year after year.

When the Strategy May Make Sense: 5 Conditions Commonly Discussed

The following is an educational overview of conditions that analysts and financial planners commonly discuss as relevant to evaluating a discounted Roth conversion. This is not a checklist for any individual to follow without consulting a qualified tax or financial professional.

1. Future marginal tax rates are likely higher than today.
2. The investor has capital outside the IRA to pay the conversion tax.
3. Converted assets are expected to grow (a growth-oriented vehicle, not a pure income vehicle).
4. Reducing future income volatility or eliminating RMDs matters to the investor.
5. Estate planning efficiency: passing more at lower values, or reducing the inherited IRA tax burden for heirs.

Six Times a Roth Conversion May Make Strategic Sense

1. The Pre-RMD Window

The gap between the end of regular salary and required minimum distributions at age 73 (under SECURE 2.0 for investors born between 1951 and 1959) is commonly considered a high-value conversion window for retirees. Income is generally at a trough and bracket room is wide. A "creeping conversion" across three to five years may spread income recognition across brackets.

2. A Low-Income Year

Any year where earned income drops materially may open a window: career transition, sabbatical, parental leave, business wind-down. A normally 32%-bracket investor with an $80,000 income year may potentially convert at 22%.

3. Before Social Security Starts

Each year before benefits begin is generally a year of lower provisional income, less likely to push across an IRMAA threshold two years later. Retirees delaying Social Security to 70 often see relatively favorable retirement brackets during the gap years.

4. To Reduce Future RMDs

Under current law, Roth IRAs are generally not subject to RMDs during the owner's lifetime. Converting before RMD age generally removes that balance from the future RMD calculation.

5. To Pass a Tax-Free Asset to Heirs

A Roth passed to non-spouse heirs is generally still subject to the SECURE Act 10-year window, but distributions are generally tax-free. A traditional IRA generally produces fully taxable distributions over that same window, often during heirs' peak earning years.

6. When the IRA Holds a Discounted Asset

When the IRA holds a private real estate fund interest with a sponsor-established NAV discount, the taxable conversion amount may be lower than the nominal balance. The sponsor engages a third-party appraisal firm under Revenue Ruling 59-60 factors and reports the discounted value to the IRA custodian. See the complete guide to discounted Roth conversions.

Finding the Roth Conversion Sweet Spot

The Roth conversion sweet spot is generally the post-retirement, pre-Social Security, pre-RMD window when earned income has dropped to a trough and the lower marginal brackets sit wide open. For many investors, this sweet spot opens at retirement (commonly somewhere between ages 60 and 65) and closes either when Social Security begins or when required minimum distributions start at age 73 under SECURE 2.0 (or 75 for investors born in 1960 or later). Inside that window, an investor may potentially convert traditional IRA dollars at a meaningfully lower marginal rate than the rate that would apply later, capturing pure rate arbitrage with little behavioral complication.

Consider a hypothetical involving a couple filing jointly at age 62. Both have retired. They are living on $35,000 of pension income and savings, with Social Security delayed to 70. In 2026, after the MFJ standard deduction, taxable income sits near zero. Converting $50,000 from a traditional IRA generally falls inside the 12% federal bracket, producing approximately $6,000 of federal tax. The same $50,000 conversion at age 75, with both Social Security streams active and an additional $80,000 of RMDs pulling the household into the 24% bracket, would generally produce approximately $12,000 of federal tax on that increment. Same conversion amount, same household, roughly half the tax bill if the conversion happens inside the sweet spot rather than after it closes. This is a simplified hypothetical. Actual tax outcomes depend on individual circumstances. Consult a qualified tax professional.

The sweet spot is generally not a single year. For most investors it is a multi-year window where a series of smaller bracket-filling conversions may potentially spread income recognition across the 12% and 22% brackets without crossing into 24%. The window narrows as Social Security starts, IRMAA thresholds enter the math, and RMDs begin. Identifying the sweet spot generally starts with one question: in which years will the household's marginal rate be at its lowest between now and age 80?

For a full age-by-age breakdown with worked examples at each band, see Roth Conversion After Retirement.

Five Situations Where a Roth Conversion May Not Make Sense

The contrarian side of the decision deserves the same honesty as the favorable scenarios. Roth conversions are generally irreversible under current tax law (recharacterization was eliminated by the Tax Cuts and Jobs Act for conversions after 2017), which makes the decision to wait a real option worth preserving.

1. Peak-Earning Year With No Low-Rate Window Ahead

An investor in the 35% or 37% federal bracket who expects to drop into the 22% or 24% bracket in retirement may find the conversion math materially unfavorable. Paying 37% today to avoid a 24% future rate is generally a thirteen-point negative spread, compounded by the loss of the tax-deferred dollars used to pay the conversion tax. The BETR framework generally argues for waiting in this case. An exception may apply when the investor has a structural reason to convert anyway: estate planning, RMD reduction, or a sponsor-disclosed NAV discount that may compress the effective conversion rate.

2. Funds Will Be Needed Within Five Years

Each converted amount is generally subject to its own five-year holding period before it can be withdrawn penalty-free as principal under age 59.5. Withdrawing before the clock clears generally triggers a 10% penalty. For investors who may need access to the converted balance within five years (home purchase, business funding, anticipated expense), conversion may create a penalty trap.

3. No Liquid Capital Outside the IRA to Cover the Tax

This is commonly considered a first-gate precondition. The conversion economics generally depend on paying the tax with capital from outside the IRA so the full position stays inside the Roth and compounds tax-free. An investor without outside capital faces two unattractive alternatives: pull the tax payment from the IRA itself (a separate taxable distribution, plus a 10% penalty under 59.5) or skip the conversion. Tax professionals generally advise waiting until the outside capital is available.

4. State Income Tax Erodes the Federal Savings

In high-tax states (California 13.3%, New York 10.9%, Oregon 9.9%, Minnesota 9.85%), the combined federal-plus-state marginal rate at conversion may exceed the future federal-only rate that would apply to RMDs after a move to a no-tax state (Florida, Texas, Tennessee, Nevada, Washington, Wyoming, South Dakota, Alaska). An investor planning that move may have a structural argument for waiting: converting after the move may reduce the combined rate by ten points or more. The state-tax layer is commonly modeled explicitly before the conversion is sized.

5. Inherited IRA Rules That Foreclose the Conversion Path

Non-spouse beneficiaries of an inherited traditional IRA generally cannot convert that inherited balance to a Roth IRA under current law. The SECURE Act is generally understood to require most non-spouse beneficiaries to distribute the entire inherited balance within ten years, with those distributions generally fully taxable as ordinary income. The strategic discussion generally shifts to sequencing the ten-year drawdown across the beneficiary's lower-income years. Spouse beneficiaries are generally different: a spouse who rolls an inherited IRA into their own IRA generally regains conversion eligibility.

How Roth Conversions Affect Medicare IRMAA (2026 Thresholds)

A Roth conversion generally counts as ordinary income in the year it occurs, and that income flows into the modified adjusted gross income (MAGI) figure that Medicare uses to set Income-Related Monthly Adjustment Amount (IRMAA) surcharges on Part B and Part D premiums. The Centers for Medicare and Medicaid Services use a two-year lookback, so a conversion executed in 2026 generally drives the IRMAA premium calculated for 2028.

Per the 2026 CMS IRMAA tables (thresholds are adjusted periodically), the relevant first thresholds are:

• Single filer: first cliff at $109,000 MAGI; surcharge tiers escalate through $137,000, $171,000, $200,000, and $500,000.
• Married filing jointly: first cliff at $218,000 MAGI; surcharge tiers escalate through $274,000, $342,000, $400,000, and $750,000.
• Surcharge magnitude: at the second cliff, the combined Part B and Part D surcharge generally adds approximately $1,148 per person per year. Each cliff is binary: $1 over the threshold may potentially trigger the full tier.

For Medicare-enrolled investors, the sweet spot conversion math generally has to include the IRMAA layer. A conversion that pushes MAGI $5,000 over the second MFJ cliff at $274,000 may potentially add roughly $2,300 of Medicare surcharge for the couple two years later, which generally translates into a higher effective marginal rate on the last increment of the conversion. For a full post-retirement deep dive, see Roth Conversion After Retirement.

"The Tax Bill Is Too High": The Most Common Objection

The most common reason investors who agree with the conversion logic still do not convert is the upfront tax bill. A $300,000 conversion at 24% federal would generate approximately $72,000 in immediate income tax. Most investors do not have $72,000 in liquid taxable savings ready to be redirected. A commonly discussed structural response is not to convince the investor that the tax bill is smaller than it looks, but to potentially reduce the taxable basis on which the conversion tax is calculated.

When the IRA holds a private real estate fund interest, the sponsor engages a third-party appraisal firm that applies lack-of-marketability and minority-interest discounts under Revenue Ruling 59-60 to establish a fair market value generally below the fund's nominal NAV. The sponsor reports that value to the IRA custodian. The taxable conversion amount is generally the fair market value, not the nominal balance. In a hypothetical illustration, a 20% discount on a $300,000 position would reduce the conversion tax from approximately $72,000 to approximately $57,600 at the same 24% federal rate. Discount availability is offering-dependent and not guaranteed. The mechanics are detailed in the traditional IRA to Roth conversion strategy.

The Biggest Mistakes With Roth Conversion Timing

Timing errors generally cost investors more than any other category of Roth conversion mistake. The most frequent patterns:

• Front-loading conversions before lower-bracket gap years. Converting heavily in the final high-earning year before retirement may potentially burn through the lower brackets that would have been available in the pre-RMD window.
• Ignoring state tax exposure. A conversion executed before a planned move from a high-tax state (California, New York, Oregon, Minnesota) to a no-tax state may potentially pay ten or more combined points of unnecessary state tax.
• Crossing a bracket inside a single year. Sizing a conversion that lands the household partway into the next federal bracket generally produces an unnecessarily high effective rate on the last increment. Splitting across two tax years may potentially keep both years inside the lower band.
• Converting the RMD itself after age 73. Under the first-money-out rule, the annual RMD generally must be taken before any additional amount can be converted. Attempting to convert the RMD itself is generally understood to be ineligible for conversion (see IRC Section 408(d)(3) and IRS RMD guidance).
• Triggering NIIT. Conversions generally do not count as net investment income, but they may push MAGI over the $200,000 single or $250,000 MFJ NIIT threshold, which may potentially expose other investment income to the 3.8% net investment income tax (IRC Section 1411).

For the complete list of Roth conversion mistakes across all strategies, see Roth Conversion Mistakes.

At What Age Does a Roth Conversion Stop Making Sense?

Age generally is not the deciding factor, but it shapes the math. Between ages 60 and 65, most retirees sit inside the sweet spot: earned income has stopped, Social Security has not started, RMDs are years away, and the lower brackets are wide open. This band is generally the highest-leverage conversion window for most investors.

Between 65 and 70, the sweet spot generally continues, but Medicare enrollment introduces the IRMAA layer. Conversion sizing has to factor in the two-year lookback to avoid pushing 2028 IRMAA into a higher tier on a 2026 conversion. Between 70 and 73, the window is generally a last call: Social Security may already have started, but RMDs have not yet begun, leaving a final two to three years to clear traditional IRA balance before the first-money-out rule forces the RMD to come out first.

From 73 forward, the calculus generally shifts. RMDs may keep the household in a higher bracket regardless of any conversion, so additional conversions on top of the RMD generally produce diminishing returns. By age 75 and beyond, the case for conversion generally narrows to estate-planning scenarios (passing a Roth to non-spouse heirs subject to the SECURE Act 10-year rule) or IRMAA arbitrage. For most investors past 75 without an estate-planning motive, the conversion math generally argues for leaving the traditional IRA in place and managing RMDs directly.

Age bands describe the typical retiree path, but a younger high-income earner can also be a strong candidate, for different reasons. Someone in their 30s or 40s sitting in a top bracket today might assume a conversion is too expensive, yet two factors can outweigh the upfront cost. First, the compounding runway is long: dollars moved to a Roth may grow tax-free for decades, and for an earner likely to remain high-income in retirement, the future marginal rate may equal or exceed today's, which is generally the condition under which converting now makes sense. Second, where a sponsor-disclosed NAV discount is available, it does proportionally more work at a high marginal rate, since lowering the taxable basis saves more in absolute dollars the higher the rate applied to it. The common trigger is a temporary low-income year, such as a sabbatical, a business start-up year, parental leave, or a year with large business losses, when even a high earner may convert at a temporarily reduced rate. Converting earlier may also head off the larger RMD-era bracket problem that a fast-growing traditional balance would otherwise create. Outcomes depend on individual circumstances and future tax law. Consult a qualified tax advisor.

For the full age-by-age breakdown with worked examples at each band, see Roth Conversion After Retirement.

Worked Example: Linda at 66 Finds Her Conversion Window

Consider a hypothetical involving Linda, a 66-year-old retiree filing jointly. She holds $280,000 in a traditional IRA from a prior 401(k) rollover. The household's only income is a $45,000 pension. Social Security is planned for 68. With the MFJ standard deduction, taxable income before any conversion sits near the bottom of the 12% bracket. The 22% MFJ ceiling in 2026 is approximately $94,000 of taxable income, leaving roughly $79,000 of bracket-fill room.

Linda has postponed converting for three years because the single-year $280,000 conversion would generate a $61,600 federal tax bill, and the household does not hold $61,600 in liquid savings.

She evaluates a ground-up multifamily development LP interest building a Class B/A apartment community with a 7-year hold horizon. Multifamily development carries higher lack-of-control and lack-of-marketability discounts than stabilized assets because there is no operating income during construction and lease-up and the LP interest is illiquid through stabilization. The sponsor's appraisal firm establishes a 25% NAV discount, within a typical 25 to 40% range for ground-up multifamily development, and reports $42,000 to the custodian for each $56,000 nominal slice. She stages four annual conversions of $56,000 nominal each, appraised at $42,000. At 22%, the annual tax would be approximately $9,240, four-year total approximately $36,960. The same $280,000 converted at full nominal value would have generated approximately $61,600 at the same 22% rate. Illustrative savings from the discount: approximately $24,640. Each annual bill fits within existing liquid savings, making the four-year sequence operationally feasible where the single-year approach was not. In this illustration, if the deal exits at year 7 with capital returned plus any potential capital appreciation flowing back to the investor, the proceeds would sit in Linda's Roth IRA and subsequent qualified distributions would generally be income-tax-free. The 25% discount is an educational illustration. Actual tax outcomes depend on individual circumstances. Consult a qualified tax professional before executing any conversion. All investments carry risk, including the loss of principal. Investors should read the risk factors in the private placement memorandum for each offering before investing.

Worked Example: John at 40 Uses a Job Change

Consider a hypothetical involving John, a 40-year-old single filer who left a financial services firm in mid-2026 and spent six months consulting before joining a startup at modest salary. His 2026 taxable income lands near the top of the 22% bracket. His normal income placed him in the 32% bracket. He holds $190,000 in a rollover IRA.

He evaluates a mineral rights LLC interest paying royalties from a series of producing wells. The sponsor's appraisal firm establishes a 60% NAV discount on the LLC interest, within a typical 50 to 75% range for mineral rights interests, reflecting the royalty-only position, the lack of operational control, the production decline curve over the life of the wells, and the absence of any secondary market for the LLC interest. The sponsor reports $20,000 to the custodian for his $50,000 LLC interest. At his current 22% rate, the conversion tax would be approximately $4,400. The same $50,000 at full nominal value in a typical 32% year would have produced approximately $16,000. Illustrative combined savings from bracket selection plus the NAV discount: approximately $11,600.

Hold and distributions. Over the life of the mineral rights, royalty distributions from production would flow back to John's Roth IRA, and subsequent qualified distributions from the Roth would generally be income-tax-free under current law. The 60% discount is an educational illustration. Actual tax outcomes depend on individual circumstances. Consult a qualified tax professional before executing any conversion. All investments carry risk, including the loss of principal. Investors should read the risk factors in the private placement memorandum for each offering before investing.

The 2026 Timing Question

Under current law as of 2026 publication, the federal bracket structure established by the Tax Cuts and Jobs Act of 2017 remains in effect following 2025 legislative action. The top rate of 37% sits below the pre-TCJA top rate of 39.6%, and the 22% and 24% brackets cover wider bands than their pre-TCJA equivalents. For investors who expect federal rates to be higher later, 2026 is a moderate-rate window.

Future legislative action remains uncertain. Future Congresses can revise brackets, change the treatment of Roth distributions, or restructure how converted amounts are taxed. Conversion decisions based primarily on legislative predictions carry inherent uncertainty.

The SECURE 2.0 Act of 2022 raised RMD age to 73 for investors born 1951-1959 and 75 for those born in 1960 or later. The change extended the pre-RMD conversion runway by one to two years compared to the prior age-72 threshold. A retiree born in 1962 retiring at 65 now has ten years before RMDs begin where the same retiree under the prior rules would have had seven.

Applying the Framework to an Individual Situation

The framework above is a general lens, not a substitute for modeling an investor's specific situation with a qualified tax professional. The relevant inputs are personal: current and projected future marginal rate, state tax exposure, outside liquid capital available for the tax, time horizon, inherited-IRA constraints, and whether the IRA holds an asset that may support a sponsor-disclosed NAV discount.

For investors with a traditional IRA balance that has been sitting unconverted because the upfront tax bill feels prohibitive, or with a low-income window opening in the next twelve months where the conversion math has not been modeled, the complete guide to discounted roth conversions walks through the structural mechanics, and the interactive Roth conversion calculator models the standard and NAV-discounted tax cost side by side. For the underlying BETR analysis, see Roth conversion strategy after retirement. Talk with our team about the private real estate investments used in these conversions to discuss what the math may look like at a specific balance and bracket.

Frequently Asked Questions

Sources

This article references the following IRS publications, Internal Revenue Code sections, and academic frameworks.

• 26 U.S.C. Section 408A, Roth IRAs (Cornell Law)
• 26 U.S.C. Section 408, Individual Retirement Accounts (Cornell Law)
• 26 U.S.C. Section 401(a)(9), Required Minimum Distribution rules (Cornell Law)
• IRS Form 8606, Nondeductible IRAs
• IRS Publication 590-B, Distributions from Individual Retirement Arrangements
• Revenue Ruling 59-60, Valuation of Closely Held Stock
• SECURE 2.0 Act of 2022, RMD age changes and related Roth provisions
• Vanguard BETR methodology, Boris Wong and Joel Dickson, Vanguard