Roth Conversions in Retirement: How Retirees Can Lower Future Taxes

If you’ve spent decades dutifully stuffing money into tax-deferred accounts like a 401(k) or Traditional IRA, you’ve done exactly what you were supposed to do. You saved. You invested. You deferred taxes while you were working and, likely, in a higher tax bracket.

But now retirement is here (or looming), and Uncle Sam is waiting for his cut.

Deferring taxes isn’t avoiding them. It’s just rescheduling the bill. And sometimes, paying that bill sooner rather than later is actually the smarter move, especially when you consider the tax impact and the possibility of owing higher income taxes in the future.

That’s where a Roth conversion comes in. It’s a powerful lever you can pull to manage your tax bill, potentially lower your lifetime tax liability, and gain more control over your money. It’s not magic, but when done right, it can feel like it. Making Roth conversions thoughtfully is part of a smart tax planning approach.

Let’s take a closer look at Roth IRA conversion rules and the Roth IRA conversion tax so you can make the most of your retirement assets (and understand the various tax implications).

What Is a Roth Conversion?

A Roth conversion, including a Roth conversion in retirement, is simply the act of taking money from a tax-deferred account, like your Traditional IRA or 401(k), and moving it into a Roth IRA or another eligible retirement plan.

The reason for this is solely due to how these accounts handle tax costs and tax deductions.

In your Traditional IRA, you haven’t paid income taxes on that money yet. The deal was: "I’ll pay taxes when I take it out." A Roth IRA is the opposite. You pay taxes on the money before it goes in, but then it grows tax-free, and qualified withdrawals are tax-free forever.

When you execute a conversion, you’re voluntarily choosing to pay income taxes on that money now,costs so you never have to pay them again. You’re essentially prepaying your tax bill to get it over with. Once the money lands in the Roth, it grows without the drag of future taxes, and you can withdraw it tax-free later when you might need it the most.

How Roth Conversions Are Taxed

This is the part of the Roth IRA conversion where you need to pay attention because this is where the "cost" happens.

When you convert IRA funds from a Traditional IRA to a Roth IRA, every dollar you convert is treated as ordinary income.

That’s why you’ll often hear about "filling up the bracket." The goal isn't necessarily to convert everything at once. It’s often smarter to convert just enough to reach the top of your current tax bracket without spilling over into the next, more expensive one. You pay the tax you know today to avoid the tax you don’t know tomorrow.

When Roth Conversions Make Sense in Retirement

You might be thinking, "Why would I voluntarily pay taxes today if I don’t have to?"

It’s a fair question. Most of us are wired to delay pain (and taxes) as long as possible. But a Roth conversion makes sense when you believe your tax rate today is lower than it will be in the future.

Here are a few specific scenarios where this strategy wins out:

The "Gap Years"

Retirees often have a golden window between the day they retire and age 73 (when Required Minimum Distributions or RMDs kick in). During these years, your income might be artificially low because you aren’t collecting a salary anymore, but you haven’t started taking mandatory withdrawals yet.

This is prime time for conversions. You can convert assets at a relatively low tax rate (say 10% or 12%) before your income is forced higher by RMDs later.

Tax Rates Are Historically Low

We’re currently living in a low-tax environment. The Tax Cuts and Jobs Act of 2017 lowered individual income tax rates, and many of those cuts were sustained under the One Big Beautiful Bill Act in 2025. If tax rates revert to their previous, higher levels, paying 22% or 24% today might look like a bargain compared to paying 25% or 28% (or more) down the road.

You Want to Leave a Tax-Free Legacy

If your goal is estate planning, converting to a Roth is a gift to your heirs. If you leave a Traditional IRA to your kids, they have to pay income taxes on every dime they withdraw.  That means they are taxed at their marginal rate, which in 2026 varies from 10% to 37% depending on their tax bracket.

Worse, under current laws (the SECURE Act), most non-spouse beneficiaries must drain that inherited IRA within 10 years. That could force your children to take huge distributions during their peak earning years, subjecting them to massive tax bills.

Inheriting a Roth IRA is different. They still have to drain it in 10 years, but the withdrawals are withdrawn tax-free. You pay the tax now, so they don’t have to later. What a gift!

The Five-Year Rule

If taxes are the cost of entry, the five-year rule for Roth is the velvet rope keeping you inside.

The IRS wants to prevent people from using Roth conversions as a short-term piggy bank. So, they created a waiting period. The rule states that you must wait five years after a conversion before you can withdraw the principal (the amount you converted) penalty-free.

If you’re under age 59½ and you withdraw converted funds within five years, you’ll get hit with a 10% early withdrawal penalty, even though you already paid income tax on that money.

Crucially, each conversion has its own five-year clock. If you do a conversion in 2026, that money is locked up until 2031. If you do another conversion in 2031, that specific chunk of money is locked up until 2036.

How Roth Conversions Affect RMDs

Traditional IRAs and 401(k)s come with strings attached: Required Minimum Distributions (RMDs).

Starting at age 73, the government forces you to withdraw a specific percentage of your tax-deferred accounts every year, whether you need the cash or not. This creates taxable income you can’t control.

Large RMDs can be a nuisance, pushing you into a higher tax bracket, causing your Social Security to be taxed at a higher rate, and increasing your Medicare premiums.

Roth IRAs, however, have no RMDs during the owner’s lifetime.

By systematically converting to a Roth during your early retirement years, you lower the balance in your Traditional IRA. A lower balance means smaller RMDs later, so if you convert everything, you eliminate RMDs entirely. You regain control over your taxable income, taking out only what you need, when you need it.

Roth Conversion Rules and Social Security or Medicare

You also have to look at the ripple effects: a Roth conversion after retirement generates income, and income affects other government benefits.

Social Security

If your "combined income" rises above certain thresholds ($25,000 for singles, $32,000 for couples), up to 85% of your Social Security benefits become taxable. A large Roth conversion, unfortunately,  counts toward this income.

If you aren't careful, a big conversion year could accidentally trigger taxes on your Social Security checks that would have otherwise been tax-free.

Medicare IRMAA

This one consistently catches people off guard: Medicare Part B and Part D premiums are based on your income from two years prior. This surcharge is called IRMAA (Income-Related Monthly Adjustment Amount).

If your Modified Adjusted Gross Income (MAGI) goes just $1 over a certain threshold, your monthly premiums jump significantly. 

Since a Roth conversion increases your MAGI, a large conversion can spike your Medicare premiums two years later. It’s not necessarily a dealbreaker (paying a slightly higher premium for one year might be worth the long-term tax savings of the conversion), but you need to do the math so you aren't surprised by the bill.

In-Plan Roth Conversions

You don’t always have to move money to an outside IRA to get tax-free growth.

Many modern 401(k) and 403(b) plans offer a feature called an "in-plan Roth conversion." This allows you to take pre-tax money sitting in your 401(k) and move it directly into the designated Roth bucket within the same plan.

The tax rules are identical to an IRA conversion. You pay ordinary income tax on the amount you move in the year you move it. Because the conversion will increase your adjusted gross income in the year of conversion, you may lose out on certain credits and tax deductions that you would have otherwise qualified for. However, if done correctly and in a timely manner, the long-term benefits should outweigh the short-term pain.

Why do this instead of moving it to a Roth IRA?

1. Simplicity: It stays in one place. You don’t have to open new accounts or transfer assets between institutions.
2. Creditor Protection: 401(k)s generally offer stronger protection against creditors and lawsuits than IRAs do in some states.
3. Backdoor Moves: Some plans allow you to make after-tax contributions (above the standard employee limit) and immediately convert them to Roth within the plan. This is often called the "Mega Backdoor Roth conversion."

Check with your plan administrator to see if this is an option. But just remember that once the money is in the Roth bucket, it’s there to stay. You can’t undo it.

Where Roth Conversions Fit in Retirement Taxes

Think of your retirement savings like a bucket of water. You want to get the water (money) out to water your garden (pay for your life) without spilling half of it (paying taxes).

Having a mix of tax-deferred (Traditional), tax-free (Roth), and taxable (brokerage) accounts gives you "tax diversification." It allows you to pick and choose where your income comes from each year to manage your tax liability.

For example, in a year when you need to buy a new car or pay for a big medical expense, pulling $50,000 from a Traditional IRA would spike your taxable income. But if you had done Roth conversions previously, you could pull that $50,000 from your Roth IRA tax-free. Your income on your tax return stays low. You maintain that lower tax bracket. Your Medicare premiums stay low. That’s the ultimate win.

So, should you convert? Maybe.

If you expect your tax rate to be higher in the future than it is today, either because of tax law changes or your own RMDs, a conversion is likely a winner.

If you expect your tax rate to be lower in the future (perhaps you have very little saved in pre-tax accounts), then paying taxes now makes less sense.

Don't guess. Run the numbers. Look at your current tax bracket, estimate your future RMDs, and check the Medicare thresholds. Talk to a financial advisor or tax professional who can model these scenarios for you.

You worked hard for your money. Don’t let a rigid tax code decide how much of it you get to keep.

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