Here's the thing nobody tells you about retirement: the tax bill doesn't retire with you. That traditional IRA or 401(k) you spent 30 years building? You never paid taxes on most of it. The IRS has been waiting patiently, and eventually it wants its cut.
A Roth conversion is the move where you volunteer to pay some of that tax now, on your terms, instead of later, on the government's. Done thoughtfully, it can save you real money and a lot of headaches down the road. Done blindly, it can hand you a surprise bill — and a few sneaky side effects most people don't see coming. Here's what to actually weigh before you pull the trigger.
What a Roth conversion actually is
You take money out of a pre-tax account — a traditional IRA, or sometimes a 401(k) — and move it into a Roth account. The amount you convert gets added to your income for that year and taxed as ordinary income. In exchange, that money grows tax-free from then on, and qualified withdrawals in the future come out tax-free.
So you're not avoiding taxes. You're choosing when to pay them. The whole bet is simple: do you think your tax rate today is lower than it'll be when you'd otherwise withdraw the money? If yes, converting can make sense. If no, it probably doesn't.
One detail that surprises people: there's no income limit on conversions. You might be barred from contributing directly to a Roth if you earn too much, but anyone can convert, regardless of income. The contribution rules and the conversion rules are two different animals.
The tax hit comes now — plan for it
The number one mistake people make is converting more than they can comfortably afford to be taxed on. If you convert $80,000, that $80,000 lands on top of your other income for the year. It can push you into a higher tax bracket and inflate your bill in April.
A couple of guardrails worth knowing:
- Try to pay the conversion tax from money outside the retirement account — a savings or brokerage account. Pulling the tax out of the IRA itself shrinks the amount that gets to grow tax-free, and if you're under 59½, it can trigger a penalty too.
- Many people convert in smaller chunks across several years — "filling up" a tax bracket each year — rather than one giant conversion that spikes them into the top brackets all at once.
- If part of your IRA is pre-tax and part is after-tax, the pro-rata rule applies. You can't just convert the after-tax portion to dodge the bill — the IRS treats it as a blended pull. This one trips up a lot of DIYers.
The Medicare trap nobody warns you about
This is the side effect that catches retirees off guard, so pay attention here. If you're on Medicare — or will be within a couple of years — a big conversion can quietly raise your Medicare premiums.
It's called IRMAA, the income-related monthly adjustment amount. When your income climbs above certain thresholds, you pay a surcharge on top of your standard Medicare Part B and Part D premiums. And here's the kicker: Medicare looks at your income from two years prior. So a conversion you do at 63 can bump up your premiums at 65.
IRMAA is also a cliff, not a slope. Go even one dollar over a threshold and the full surcharge kicks in — there's no gentle phase-in. For a 2026 conversion, the first threshold sits around $109,000 of income for a single filer and roughly $218,000 for a married couple filing jointly. Cross it, and you could owe more than a thousand dollars per person in extra premiums down the line. None of this means "don't convert." It means run the numbers with these brackets in view, because a conversion that ignores IRMAA can quietly eat its own savings.
The upside: why people do this at all
If the tax hit and the Medicare math are the downsides, here's what's pulling people toward conversions in the first place.
No required withdrawals. Traditional IRAs and 401(k)s force you to start taking money out — and paying tax on it — once you hit 73. Those required minimum distributions can push your income (and your IRMAA) up whether you need the cash or not. Roth IRAs have no RMDs for the original owner. Your money can sit and grow as long as you like.
Tax-free income later. Once the money's in the Roth and the rules are met, withdrawals don't add to your taxable income. That can keep you in a lower bracket in your 70s and 80s and give you flexibility in years when you have a big one-time expense.
A cleaner inheritance. Heirs who inherit a traditional IRA generally owe income tax as they draw it down. A Roth passes to them tax-free, which can be a meaningful gift if leaving something behind matters to you.
A sweet-spot window. The years between retiring and starting Social Security or RMDs are often a low-income stretch — your paycheck's gone but the mandatory withdrawals haven't started. That valley is where a lot of smart conversions happen, because your tax rate is temporarily low.
Don't forget the 5-year rule
Each conversion starts its own five-year clock. To pull the converted money out completely free of taxes and penalties, you generally need to wait five years and be at least 59½. For most retirees converting money they don't plan to touch for a while, this is a non-issue. But if you might need that specific money soon, the clock matters — don't convert cash you'll want next year.
What to do next
You don't have to decide everything today. You just have to organize the decision instead of guessing at it:
- Pull together what's actually in your pre-tax accounts and what your income looks like this year versus a typical future year.
- Figure out where the top of your current tax bracket is — that's usually the ceiling for how much to convert in one year.
- Check whether you're within two years of Medicare, and if so, where the IRMAA thresholds fall.
- Confirm you have money outside the IRA to pay the tax.
- Then take all of that to a CPA or a fee-only financial advisor and run the actual projections before you move a dollar.
A Roth conversion is one of the few retirement moves that's genuinely irreversible once the tax year closes, so it's worth slowing down for. The goal isn't to convert as much as possible — it's to convert the right amount, in the right years, with the side effects accounted for.
If you're staring at this decision and don't know where to start, the Roth Conversion — Decision Worksheet walks you through the numbers to gather and the trade-offs to weigh, so the conversation with your advisor takes ten minutes instead of an hour. It's part of the Retirement bundle at lumeway.co.
You worked decades for this money. It's worth a few quiet hours to decide when the tax gets paid.
This post is for general informational purposes only and does not constitute legal, financial, or tax advice. Tax brackets, IRMAA thresholds, contribution and conversion rules, and required minimum distribution ages change over time and depend on your individual circumstances. For guidance specific to your situation, consult a licensed CPA, tax professional, or financial advisor before making a Roth conversion.