You can make a Roth IRA conversion at any time, as long as you have money in a qualifying pre-tax account. But the real question is whether it benefits you. Converting in your 60s, for example, can help you avoid required minimum distributions (RMDs) and future taxes on qualified withdrawals. However, doing so later in life can also mean paying a large tax bill without giving funds much time to grow tax-free. To help you determine whether this strategy is a good fit for your retirement, let’s walk through an example of a 63-year-old who wants to convert $70,000 annually from an IRA to minimize RMD taxes.
If you are considering an Roth conversion, a financial advisor can run projections to show you how this strategy could affect your long-term finances.
What Is a Roth Conversion?
A Roth conversion is a common tax strategy that involves moving money from a pre-tax retirement account, such as a traditional IRA or 401(k), into a Roth IRA. This can be done by taking a distribution from the pre-tax account and depositing it into a Roth IRA, or by transferring the assets directly. You can convert any amount as often as you choose, provided that funds come from a qualifying pre-tax account.
Once the money is in a Roth IRA, it grows tax-free, and qualified withdrawals in retirement are not included in your taxable income. A Roth IRA also does not require minimum distributions, which may help you manage taxable income in retirement and limit the impact on items like Social Security taxation and Medicare income-related premiums. Your heirs can also take withdrawals without income tax if they follow Roth rules.
Each conversion is subject to the five-year rule. Converted amounts must remain in the account for five years to avoid early-withdrawal penalties if you are under age 59 ½. Earnings must also meet their own five-year requirement to be withdrawn tax-free. If you are older than 59 ½, the penalty on converted amounts does not apply, but the five-year rule still affects whether earnings qualify for tax-free treatment.
The main cost of a Roth conversion is the income tax you owe in the year you convert the funds.
What Are Roth Conversion Taxes?
When you make a Roth conversion, you include the amount converted in your taxable income for the year. This means that you must pay income taxes on that money. If you’re over age 59 ½, you can use your retirement account to cover these additional taxes. Those under 59 ½ need to have the money available from other sources.
Converting retirement funds creates two separate costs. Using the account to pay taxes reduces the balance immediately. Using outside money diverts cash you could have invested in a taxable portfolio. Either choice affects how much you keep working for future growth. As an example, let’s break down annual conversions from a $700,000 IRA.
A single-year conversion adds the full $700,000 to your taxable income. Using the 2026 single-filer brackets, the tax on that amount would be about $214,957, which produces an effective rate of 30.71%. Paying the bill from the IRA would leave about $485,043 in the account after taxes.
Here are the steps for the 2026 calculation:
- First $12,400 at 10% = $1,240
- Next $38,000 at 12% = $4,560
- Next $55,300 at 22% = $12,166
- Next $96,075 at 24% = $23,058
- Next $54,450 at 32% = $17,424
- Next $384,375 at 35% = $134,531.25
- Final $59,400 at 37% = $21,978
Total tax = $214,957.25 (rounded to $214,957)
Effective rate = total tax ÷ conversion amount ($214,957.25 ÷ $700,000) ≈ 0.3071 (30.71%)
After-tax Roth amount if taxes come from the IRA = about $485,043
Converting $70,000 each year for 10 years produces a different result than converting $700,000 at once. Using the 2026 single-filer brackets, the tax on a $70,000 conversion would be about $10,112, an effective rate of about 14.45%.
Over 10 years, the cumulative tax on $700,000 of conversions would be about $101,120, which is less than half of the $214,957 owed on a single-year conversion in this example. Note that this example assumes each $70,000 conversion is taxed using the 2026 single-filer brackets and that no other taxable income, deductions or credits are included in the calculation.
Accounting for Growth
An important, often overlooked, issue when you consider a Roth conversion is to account for portfolio growth. The money that you use to pay for conversion taxes is what financial advisors call an “opportunity cost.” It’s all capital that you could have left in place to continue growing.
Take our example of a lump-sum transfer above. Say that you plan on retiring in five years, at age 68. Your portfolio earns a steady 8% mixed-asset rate of return. You can either leave your $700,000 IRA in place and pay taxes upon withdrawal or you can convert it all today, for a roughly $485,043 after-tax Roth IRA and pay no taxes in retirement. At age 68, you might retire with:
- Traditional IRA: $1,028,530. At a 4% withdrawal rate, that is about $41,141 per year before taxes.
- Roth IRA: about $712,687. At a 4% withdrawal rate, that is about $28,507 of tax-free income.
Steps for the growth calculations (5 years at 8%):
1. Compute the growth factor:
2. Traditional IRA projection:
- $700,000 × 1.4693 ≈ $1,028,530.
- 4% withdrawal: $1,028,530 × 0.04 ≈ $41,141.
3. Roth IRA projection:
- Starting balance after conversion tax: $700,000 − $214,957.25 ≈ $485,042.75.
- After five years of growth: $485,042.75 × 1.4693 ≈ $712,686.93 (rounded to $712,687).
- 4% withdrawal: $712,687 × 0.04 ≈ $28,507.
A staggered transfer would significantly reduce your conversion taxes, but it also creates a new consideration. As you convert portions of the account over time, the remaining balance in your traditional IRA continues to grow. In this example, the plan is to convert $70,000 each year, which results in $59,888 moving into the Roth IRA after taxes.
If both accounts earn an 8% annual return and each conversion occurs on January 1, the process works as follows: you convert the yearly amount first, then apply 8% growth to the remaining traditional IRA balance and to the new Roth IRA balance. Under these assumptions, the amortization schedule for the conversion would be:
- Year one: Traditional IRA $680,400; Roth IRA $64,679
- Year two: Traditional IRA $659,232; Roth IRA $134,532
- Year three: Traditional IRA $636,371; Roth IRA $209,974
- Year four: Traditional IRA $611,681; Roth IRA $291,451
- Year five: Traditional IRA $585,015; Roth IRA $379,446
- Year six: Traditional IRA $556,216; Roth IRA $474,481
- Year seven: Traditional IRA $525,113; Roth IRA: $577,118
- Year eight: Traditional IRA $491,522; Roth IRA: $687,967
- Year nine: Traditional IRA $455,244; Roth IRA: $807,683
- Year 10: Traditional IRA $416,063; Roth IRA: $936,977
Steps Behind This Schedule (Each Year):
Start of year one: Traditional IRA = $700,000; Roth IRA = $0.
Convert $70,000 out of the traditional IRA; pay $10,112 of tax; move $59,888 net into the Roth.Traditional after conversion: $700,000 − $70,000 = $630,000; Roth after deposit: $0 + $59,888 = $59,888.
Apply 8% growth: Traditional = $630,000 × 1.08 = $680,400; Roth = $59,888 × 1.08 ≈ $64,679.
Year two starting balances: Traditional IRA = $680,400; Roth IRA = $64,679.
Subtract the next $70,000 conversion from the traditional IRA: $680,400 − $70,000 = $610,400.
Add the net $59,888 deposit to the Roth IRA: $64,679 + $59,888 = $124,567.
Apply 8% growth: Traditional = $610,400 × 1.08 = $659,232; Roth = $124,567 × 1.08 ≈ $134,532.
Year three starting balances: Traditional IRA = $659,232; Roth IRA = $134,532.
Subtract $70,000 from the traditional IRA: $659,232 − $70,000 = $589,232.
Add $59,888 to the Roth IRA: $134,532 + $59,888 = $194,420.
Apply 8% growth: Traditional = $589,232 × 1.08 ≈ $636,371; Roth = $194,420 × 1.08 ≈ $209,974.
Year four starting balances: Traditional IRA = $636,371; Roth IRA = $209,974.
Subtract $70,000 from the traditional IRA: $636,371 − $70,000 = $566,371.
Add $59,888 to the Roth IRA: $209,974 + $59,888 = $269,862.
Apply 8% growth: Traditional = $566,371 × 1.08 ≈ $611,681; Roth = $269,862 × 1.08 ≈ $291,451.
Year five starting balances: Traditional IRA = $611,681; Roth IRA = $291,451.
Subtract $70,000 from the traditional IRA: $611,681 − $70,000 = $541,681.
Add $59,888 to the Roth IRA: $291,451 + $59,888 = $351,339.
Apply 8% growth: Traditional = $541,681 × 1.08 ≈ $585,015; Roth = $351,339 × 1.08 ≈ $379,446.
Year six starting balances: Traditional IRA = $585,015; Roth IRA = $379,446.
Subtract $70,000 from the traditional IRA: $585,015 − $70,000 = $515,015.
Add $59,888 to the Roth IRA: $379,446 + $59,888 = $439,334.
Apply 8% growth: Traditional = $515,015 × 1.08 ≈ $556,216; Roth = $439,334 × 1.08 ≈ $474,481.
Year seven starting balances: Traditional IRA = $556,216; Roth IRA = $474,481.
Subtract $70,000 from the traditional IRA: $556,216 − $70,000 = $486,216.
Add $59,888 to the Roth IRA: $474,481 + $59,888 = $534,369.
Apply 8% growth: Traditional = $486,216 × 1.08 ≈ $525,113; Roth = $534,369 × 1.08 ≈ $577,118.
Year eight starting balances: Traditional IRA = $525,113; Roth IRA = $577,118.
Subtract $70,000 from the traditional IRA: $525,113 − $70,000 = $455,113.
Add $59,888 to the Roth IRA: $577,118 + $59,888 = $636,996.
Apply 8% growth: Traditional = $455,113 × 1.08 ≈ $491,522; Roth = $636,996 × 1.08 ≈ $687,967.
Year nine starting balances: Traditional IRA = $491,522; Roth IRA = $687,967.
Subtract $70,000 from the traditional IRA: $491,522 − $70,000 = $421,522.
Add $59,888 to the Roth IRA: $687,967 + $59,888 = $747,855.
Apply 8% growth: Traditional = $421,522 × 1.08 ≈ $455,244; Roth = $747,855 × 1.08 ≈ $807,683.
Year 10 starting balances: Traditional IRA = $455,244; Roth IRA = $807,683.
Subtract $70,000 from the traditional IRA: $455,244 − $70,000 = $385,244.
Add $59,888 to the Roth IRA: $807,683 + $59,888 = $867,571.
Apply 8% growth: Traditional = $385,244 × 1.08 ≈ $416,063; Roth = $867,571 × 1.08 ≈ $936,977.
After taxes and growth you will end up with about $936,977 in your Roth IRA, but $416,063 in your traditional IRA still exposed to RMDs and taxes. If you want to convert this portfolio entirely in 10 years, you would need to account for these returns. For example, if your portfolio is growing at 8% annually, you would need to move 18% of the portfolio each year, or $126,000. Here the percentage step is 0.18 × $700,000 = $126,000.
This 18% figure is an illustrative example and does not reflect the exact conversion amount required to fully deplete an 8%-growing account over 10 years. But, in turn, would expose your portfolio to significantly higher conversion taxes, likely at least $22,838 per year.
Steps for the Tax on a $126,000 Conversion (Single Filer in 2026):
- First $12,400 at 10%: $12,400 × 0.10 = $1,240
- Next $38,000 (up to $50,400) at 12%: $38,000 × 0.12 = $4,560
- Next $55,300 (up to $105,700) at 22%: $55,300 × 0.22 = $12,166
- Remaining $20,300 (from $105,700 to $126,000) at 24%: $20,300 × 0.24 = $4,872
- Total tax = $22,838.
You should note that any withdrawals made during the 10-year conversion period will affect these calculations and change the projected balances.
Should You Make a Roth Conversion?
In this example, we assume that you are 63 years old and deciding whether to convert a $700,000 traditional IRA to a Roth IRA. The points below outline the main issues that usually shape this decision.
A common starting point is the timeline for required withdrawals. A 63-year-old in 2026 would have an RMD age of 75, which gives you 12 years before mandatory distributions begin. If you want to remove RMDs or shift this balance into an account that allows qualified tax-free withdrawals, a Roth conversion can meet that goal. After the conversion tax is paid, qualified Roth withdrawals are not subject to federal income tax, and heirs generally receive qualified Roth distributions tax-free under current rules.
Another important factor is your current income. The amount you convert is treated as taxable income, which increases the tax you pay that year. For example, someone earning $100,000 who converts $126,000 would have $226,000 of taxable income and an additional tax cost of about $32,064. A $70,000 conversion increases taxable income to $170,000 and produces about $16,686 in added tax. These amounts reduce how much ends up in your Roth IRA.
Steps for These “Conversion Tax” Figures:
- Step one (tax on $100,000): $1,240 + $4,560 + $10,912 = $16,712.
- Step two (tax on $226,000): $41,024 + $7,752 = $48,776. (Incremental tax on the $126,000 conversion: $48,776 − $16,712 = $32,064.)
- Step three (tax on $170,000): $17,966 + $15,432 = $33,398. (Incremental tax on the $70,000 conversion: $33,398 − $16,712 = $16,686.)
Expected retirement income also influences the outcome. If you anticipate higher taxable income later in life, paying the tax now may reduce your long-term tax burden. If you expect to be in a lower bracket later, the conversion may offer less value.
Time horizon matters as well. Roth conversions tend to be more effective when the account has many years to grow after the tax is paid. With fewer years before withdrawals begin, the upfront tax cost may be more difficult to offset. A conversion is also less attractive when your current tax rate is higher than the rate you expect in retirement.
The decision ultimately depends on how your income, retirement plans and long-term projections align. Under the assumptions used in this example, a large Roth conversion at age 63 may offer limited tax benefit. The conversion tax is substantial, and the shorter growth period reduces the potential advantage of tax-free compounding.
Bottom Line
A Roth IRA conversion is generally more effective when it is done earlier, while the account still has many years to grow. As you get closer to retirement, the decision becomes more complicated, because you must weigh staggered conversions, current and future tax rates and your income needs in retirement. In many situations, the limited time before withdrawals begin reduces the potential benefit of a late-stage conversion.
Retirement Planning Tips
- A financial advisor can help you determine whether you have enough saved for retirement and recommend strategies to grow your nest egg. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your nest egg could grow over time, SmartAsset’s retirement calculator could help you get an estimate.
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