Roth Conversion Calculator (US)

Roth Conversion Strategy Guide

What is a Roth Conversion?

A Roth conversion moves money from a Traditional IRA / 401(k) (pre-tax) to a Roth IRA (post-tax). The amount converted is added to your taxable income for that year. You pay tax now at your marginal rate. In exchange, the money grows tax-free FOREVER and qualified withdrawals after age 59½ are tax-free. There's no income limit on conversions (unlike Roth contributions). No conversion limit either — you can convert any amount. The decision is fundamentally about tax-rate arbitrage: pay tax now versus later, betting on whether your tax rate today is lower than it will be in retirement.

When Conversions Make Sense?

Strong cases for conversion: (1) Low-income year — gap years between retirement and Required Minimum Distributions (RMDs at 73) are prime conversion windows. (2) Bear market — convert when account values are depressed, future recovery happens tax-free. (3) Estate planning — Roth IRAs have no RMDs during owner's lifetime; heirs inherit tax-free (10-year drawdown rule). (4) Expecting higher future tax rates — TCJA expires end of 2025; tax rates may rise. (5) Want tax diversification — splitting between Traditional and Roth accounts to hedge against uncertainty about future tax rates and rules.

What do I need to know about The Roth Conversion Ladder (FIRE Strategy)?

Early retirees in the FIRE community use conversion ladders to access retirement money before 59½ without 10% penalty. Strategy: (1) Retire at, say, 45 with $1M in 401(k). (2) Roll 401(k) to Traditional IRA. (3) Each year, convert $40,000 from Traditional to Roth. Pay tax at low rate (no other income). (4) Wait 5 years — conversions can be withdrawn penalty-free after 5 years from Roth (the seasoning rule). (5) At age 50, start withdrawing the conversions you made at age 45. Continue rolling the ladder forward each year, converting a new batch 5 years before you plan to withdraw it, to access retirement funds penalty-free before the standard retirement age.

What should I know about Conversion Gotchas?

Watch out for: (1) Medicare IRMAA surcharges — higher income from conversions raises Medicare Part B/D premiums 2 years later for those 63+ converting. (2) Social Security taxation — conversions can push more SS into the 85%-taxed bracket. (3) ACA subsidies — pre-Medicare retirees on ACA marketplace plans lose subsidies as conversion income rises. (4) Pro-rata rule — if you have any deductible Traditional IRA money, you can't selectively convert non-deductible portion. (5) No recharacterization allowed since 2018 — once a conversion is made, it cannot be reversed if your circumstances or tax situation change, so plan conversions carefully before executing them.