Roth Conversions Before Retirement: When They Can Save You Money (and When They Don't)

Many of the pre-retirees I meet in The Woodlands and across Greater Houston have done exactly what they were told to do. They maxed out their 401(k), rolled old plans into IRAs, and let decades of pre-tax savings compound.

The result is often a large balance that has never been taxed. Every dollar that comes out later will be taxed as ordinary income, on a schedule the IRS largely controls. A Roth conversion is one of the few tools that lets you decide when some of that tax gets paid.

This article is written for people in their late 50s through early 70s who are close to leaving work, or recently retired, and are wondering whether converting part of their savings to Roth could reduce their taxes over their lifetime. It won't be the right move for everyone, and the details matter a great deal.

What is a Roth conversion, in plain terms?

A Roth conversion moves money from a pre-tax account, such as a traditional IRA, into a Roth IRA. The amount you convert is generally added to your taxable income for that year, under Internal Revenue Code Section 408A and the conversion rules described in IRS Publication 590-A.

In exchange for paying tax now, qualified withdrawals from the Roth later can be tax-free. Roth IRAs also have no required minimum distributions during the original owner's lifetime. Conversions are reported to the IRS on Form 8606.

You don't have to convert everything at once. Most planning conversations I have involve converting a measured amount each year over several years.

When can a Roth conversion actually save you money?

The core question is simple, even if the math isn't: is the tax rate you'd pay on converted dollars today lower than the rate those same dollars would face later? If it is, a conversion may reduce total lifetime taxes. If it isn't, converting may simply mean paying tax earlier than you needed to.

For many households, the answer depends less on today's tax brackets and more on what their income will look like once Social Security and required minimum distributions stack on top of each other. A retiree who looks "low income" at 62 can look very different at 76.

Who ends up paying the tax later?

It's easy to think only about your own tax bracket. In practice, pre-tax dollars may eventually be taxed to one of three people: you, a surviving spouse, or your heirs.

• A surviving spouse usually moves from married-filing-jointly to single filing status. The same income can land in a higher bracket, a situation often called the "widow's penalty."

• Adult children who inherit a traditional IRA generally must empty it within ten years under the SECURE Act rules summarized in IRS Publication 590-B. If they inherit during their own peak earning years, those withdrawals could be taxed at higher rates than you would have paid.

• Charities pay no income tax on pre-tax dollars they receive, which can be a reason not to convert money you intend to give away.

Why are the years between retirement and RMDs often called the "conversion window"?

For many people, the lowest-income years of adult life fall between their last paycheck and the start of Social Security and required minimum distributions. Under the SECURE 2.0 Act, RMDs generally begin at age 73 for people born from 1951 through 1959, and at 75 for those born in 1960 or later, as outlined in the IRS's RMD FAQs.

If you retire at 62 and delay Social Security, you may have a decade or more with relatively little taxable income. Those years can be an opportunity to convert at rates that may be lower than what you'd face later.

Converting during this window can also shrink the pre-tax balance that future RMDs are calculated on. Smaller RMDs may mean more control over your taxable income in your 70s and 80s.

Does living in Texas change the Roth conversion math?

Texas has no state personal income tax, so a conversion here is generally subject only to federal income tax. For Houston-area retirees, that can make conversions more attractive than they would be in a state with its own income tax.

It also matters if you're planning a move. If you expect to retire to a state that taxes income, converting while you're still a Texas resident may be worth evaluating. If you're relocating to Texas from a higher-tax state, it may make sense to wait until residency is established. State residency rules vary, so this is a question to review with a tax professional.

What hidden costs can a Roth conversion trigger?

The tax bracket is only part of the cost. Because conversion income raises your adjusted gross income, it can quietly affect other parts of your finances.

Medicare premiums (IRMAA)

Medicare Part B and Part D premiums include income-related surcharges, known as IRMAA, based on your modified adjusted gross income from two years earlier, as explained by the Social Security Administration. That means conversions made at 63 or later can raise premiums once you're on Medicare.

IRMAA works in tiers, so crossing a threshold by a single dollar can increase premiums for the whole year. This is one reason careful sizing of each year's conversion matters.

Taxation of Social Security benefits

If you've already started Social Security, conversion income can increase the portion of your benefits that is taxable. IRS Publication 915 explains how "provisional income" determines that calculation. The combined effect can make your true marginal rate on a conversion higher than your bracket suggests.

ACA health insurance subsidies

If you retire before 65 and buy coverage through the Health Insurance Marketplace, premium tax credits are based on your household income. A conversion can reduce or eliminate those credits for the year, which effectively adds to the cost of converting.

Capital gains and other income-based benefits

Conversion income can push long-term capital gains out of the 0% federal rate and into the 15% rate. It can also reduce income-tested deductions, including the temporary additional deduction for taxpayers age 65 and older enacted in 2025. These interactions are easy to miss without a full tax projection.

When might a Roth conversion not make sense?

Conversions are sometimes presented as universally good. In my experience, they're a tool that fits some situations well and others poorly.

• You're still in your peak earning years and would convert at a high marginal rate.

• You expect your income in retirement to be meaningfully lower than it is now.

• You would need to use IRA money itself to pay the tax.

• You'll need the converted funds within a few years.

• You plan to leave a significant portion of your IRA to charity, or to give through qualified charitable distributions after age 70½.

• The conversion would push you into a higher IRMAA tier or cost you ACA subsidies that outweigh the expected benefit.

None of these automatically rules out a conversion. They're signals that the numbers deserve a closer look before acting.

How should you pay the tax on a Roth conversion?

For many households, paying the tax from taxable savings, such as a brokerage or cash account, can be more efficient than withholding it from the conversion itself. Paying from outside funds keeps more money growing inside the Roth.

If you're under 59½, any amount withheld for taxes is treated as a distribution rather than converted, which may be subject to the 10% early withdrawal penalty. Because conversions add income without withholding, you may also need to make estimated tax payments using IRS Form 1040-ES to avoid underpayment penalties.

What rules should you know before converting?

• Conversions can't be undone. The Tax Cuts and Jobs Act eliminated the ability to recharacterize Roth conversions for tax years after 2017, so each year's decision is final.

• Five-year rules apply. Each conversion has its own five-year period for purposes of the 10% penalty if you're under 59½, and tax-free treatment of earnings has its own five-year requirement, as described in IRS Publication 590-B.

• After-tax basis is prorated. If any of your IRAs hold after-tax contributions, the pro-rata rule on Form 8606 generally prevents you from converting only the after-tax portion.

• RMDs come first. Once RMDs begin, that year's required distribution must be taken before converting, and the RMD itself can't be converted.

How does a fee-only fiduciary approach Roth conversion planning?

At Tiverton Wealth, we treat Roth conversions as a multi-year tax projection, not a one-time transaction. We look at your expected income year by year, including Social Security timing, RMDs, Medicare premiums, and what might happen if one spouse outlives the other. From there, we can help evaluate how much, if anything, to convert each year.

As a fee-only Registered Investment Advisor, we owe clients a fiduciary duty under the Investment Advisers Act of 1940, as described in the SEC's 2019 interpretation of the investment adviser standard of conduct, and CFP® professionals are held to the fiduciary duty in the CFP Board's Code of Ethics and Standards of Conduct. Because our advisory fees are flat-dollar rather than a percentage of assets or commissions, whether you convert doesn't change what we're paid.

Our planning work is also coordinated with tax preparation through our affiliated firm, Tiverton Tax, LLC. That connection can be useful for this topic in particular, because conversion decisions show up directly on your return. If you're in The Woodlands, Spring, Conroe, or elsewhere in the Houston area and want to explore whether conversions fit your plan, we're glad to talk it through.

You can review my full regulatory background on the SEC's Investment Adviser Public Disclosure website: Alex Bridges — IAPD record.

This article is provided by Tiverton Wealth, LLC for general educational and informational purposes only. It does not constitute personalized investment, tax, or legal advice, and should not be relied upon as a substitute for advice from a qualified professional familiar with your specific circumstances. Tiverton Wealth, LLC is a fee-only Registered Investment Advisor providing services only in jurisdictions where it is properly registered or exempt from registration. Investing involves risk, including the possible loss of principal, and no strategy can guarantee a profit or protect against loss. Past performance is not indicative of future results. Please consult with a qualified financial, tax, or legal professional before making decisions based on this content.

Frequently Asked Questions About Roth Conversions Before Retirement

Is it too late to do a Roth conversion after age 60?

Not necessarily. For many people, the years between retirement and the start of required minimum distributions are among the lowest-income years of their lives, which can make their 60s a practical time to evaluate conversions. The decision should account for Medicare premium surcharges, which are based on income from two years earlier.

Can I convert only part of my IRA to a Roth?

Yes. You can convert any amount, and many retirees convert a portion each year over several years. Spreading conversions out may help manage the tax bracket, Medicare premiums, and other income-based costs in each year.

Can I undo a Roth conversion if I change my mind?

No. The Tax Cuts and Jobs Act eliminated recharacterization of Roth conversions for tax years after 2017. Once a conversion is completed, the income is taxable for that year, so it's important to review the numbers before converting.

Do Texas residents pay state income tax on a Roth conversion?

Texas does not have a state personal income tax, so a conversion by a Texas resident is generally subject only to federal income tax. If you plan to move to another state, that state's rules and residency requirements should be reviewed with a tax professional.

Can I do a Roth conversion if I'm already taking required minimum distributions?

Yes, but that year's required minimum distribution must be taken first, and the RMD itself cannot be converted. Amounts beyond the RMD can be converted, subject to the same tax considerations as any other conversion.