To Tax or Not to Tax? Mastering the Roth Conversion Strategy
Master the Roth conversion strategy in 2026 to cut taxes, avoid IRMAA, and build tax-free retirement income.
A solid Roth conversion strategy can be one of the most powerful tax moves available to high earners — but only if you understand when, how much, and at what cost to convert.
Here's the quick answer:
A Roth conversion means moving money from a traditional (pre-tax) IRA or 401(k) into a Roth IRA. You pay ordinary income tax on the amount converted today. In exchange, that money grows tax-free and is never subject to required minimum distributions (RMDs).
When it makes sense:
When it may not:
The core idea is simple: pay taxes now at a known rate, rather than later at an unknown one.
But the execution is where most people leave money on the table — or make costly mistakes.
I'm Daniel Delaney, Founder of Seek & Find Financial, and I've spent my career helping individuals and families navigate complex retirement and tax planning decisions, including building multi-year Roth conversion strategies for clients with significant pre-tax balances. In the sections below, I'll walk you through exactly how to approach this decision with clarity and confidence.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or guarantee against losses. Past performance may not be used to predict future results. Provided content is for overview and informational purposes only, reflect the opinions of the author, and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice.
This information is being provided only as a general source of information. These views may change as market or other conditions change. This information is not intended and should not be used to provide financial advice and does not address or account for an individual's circumstances. Past performance does not guarantee future results and no forecast should be considered a guarantee. Please seek the guidance of a financial professional regarding your particular financial concerns.
Investment advisory services offered by duly registered individuals through Seek & Find Financial LLC a Registered Investment Adviser. Licensed Insurance Professional
Key terms for Roth conversion strategy:
A Roth conversion is a simple concept. You move money from a traditional retirement account to a Roth retirement account.
In a traditional IRA or 401(k), you get a tax break when you put the money in. The money grows tax-deferred. You pay ordinary income taxes when you withdraw the money in retirement.
In a Roth IRA, you do not get a tax break today. You put in after-tax money. But that money grows tax-free. Your withdrawals in retirement are also tax-free.
When you do a Roth conversion, you are moving pre-tax assets into after-tax assets. This move is treated as a taxable distribution. You must pay ordinary income tax on the converted amount in the year of the conversion.
For example, if you convert $100,000 from a traditional IRA to a Roth IRA, you must report that $100,000 as ordinary income.
This process might sound painful because you have to write a check to the IRS. But the long-term math can be incredible. A $100,000 Roth conversion growing at 7% for 25 years becomes $542,743 of completely tax-free money.
You must also understand the pro-rata rule. If you have both pre-tax and after-tax money in your traditional IRAs, you cannot choose to convert only the after-tax money. The IRS views all your traditional, SEP, and SIMPLE IRAs as one big bucket. Any conversion you make will be taxed proportionally. This is a vital detail that many people overlook.
To learn more about the differences between these accounts, read our guide on traditional IRAs.
Timing is everything when it comes to your Roth conversion strategy. You want to execute conversions when your tax rate is relatively low.
There are three main times when a conversion makes the most sense:
First, during market downturns. If the stock market drops, your account value drops. This means you can convert the same number of shares for a lower tax cost. When the market recovers, that growth happens tax-free inside your Roth IRA.
Second, during low-income years. If you take a sabbatical, start a business, or have a bad business year, your tax bracket will be lower. This is an ideal time to convert.
Third, during the retirement gap years. This is the sweet spot for many of our clients in Valparaiso, Chesterton, and Chicago.
You can also read the official IRS guidelines on Roth IRA conversions to understand the basic federal rules.
The retirement gap is the period between when you stop working and when you start taking Social Security and Required Minimum Distributions (RMDs). This window usually occurs between ages 60 and 70.
During these gap years, your earned income drops to zero. Your tax bracket drops significantly. If you do nothing, you might pay very little tax. But this is actually a missed opportunity.
If you do not use this low-bracket space, you lose it forever. For example, a client who retires at 62 and does not start converting until 68 has lost 6 years of 10% and 12% bracket space. That equals $798,000 of conversion capacity gone if we assume a capacity of $133,000 per year.
By converting during these gap years, you fill those low tax brackets on purpose. This reduces the size of your traditional IRA. When you finally reach RMD age, your mandatory distributions will be much smaller. This keeps you in a lower tax bracket for the rest of your life.
Sizing your conversion correctly is the difference between a smart tax move and a costly mistake. You should never convert your entire traditional IRA at once. That would push you into the highest federal tax bracket.
Instead, we use a bracket-filling approach. You want to convert just enough to fill your current tax bracket to the top, without spilling over into the next one.
State income taxes also play a big role. If you live in Illinois, you face a flat state income tax of 4.95%. If you live in Indiana, you pay a low flat state tax plus a county tax. These rates are much lower than high-tax states like California, where total conversion costs can reach over 35%.
To estimate your tax liability, you can use the Roth Conversion Tax Estimator provided by the IRS. For more advanced help, read our guide on high income tax planning.
To find your optimal conversion amount, you must run detailed tax projections.
For a married couple with zero other income in 2026, the total conversion they can make in the 12% bracket is $133,000. This results in a blended federal tax rate of about 10%.
If you convert too much at once, the math changes quickly. A client who converts $300,000 in one year instead of $100,000 per year for three years pays roughly $15,000 more in federal tax.
Multi-year planning allows you to spread the tax liability. This keeps your marginal tax rate as low as possible.
One of the most important rules of a Roth conversion strategy is how you pay the tax bill. You should always pay the conversion taxes using outside cash. This means using money from a checking account or a taxable brokerage account.
Do not withhold taxes from the conversion itself. If you do, you reduce the amount of money that gets moved into the Roth IRA to compound tax-free.
| Feature | Paying Taxes with Outside Cash | Paying Taxes from the IRA |
|---|---|---|
| Amount Converted | 100% of the target amount | Reduced by the tax percentage |
| Tax-Free Growth Potential | Maximum growth on full balance | Lower growth on reduced balance |
| Early Withdrawal Penalty | None | 10% penalty if under age 59.5 |
| Long-Term Wealth Impact | High | Significantly lower |
For example, a client who converts $100,000 and withholds $22,000 for taxes only grows $78,000 tax-free. That $22,000, if left invested at 7% for 25 years, would have been worth $119,258 tax-free. If you are under age 59.5, using IRA funds to pay the tax also triggers a 10% early withdrawal penalty on the withheld amount.
As we navigate the tax landscape of 2026, high earners must be aware of several hidden costs. The One Big Beautiful Bill Act (OBBBA) made the Tax Cuts and Jobs Act tax brackets permanent. This is great news because we no longer have to worry about tax rates automatically spiking.
However, OBBBA also introduced new phaseouts. The most notable is the senior deduction phaseout. For taxpayers over age 65, this deduction phases out starting at $150,000 of Modified Adjusted Gross Income (MAGI) for married couples.
Over a 10-year conversion strategy, the cumulative impact on a couple converting $100,000 per year in the $150,000 to $350,000 MAGI range is $2,600 to $2,800 in additional taxes due to this phaseout.
To learn more about these rules, check out our guide on Roth IRAs for high earners.
For business owners and high earners making $400K+, 2026 brings new rules under SECURE 2.0. High earners must now make their age 50+ catch-up contributions to employer plans as Roth-only contributions.
This change makes multi-year planning even more critical. High-net-worth planning is no longer about one-time transactions. It is about flattening your lifetime tax curve.
Over a 15-year period, converting $150,000 to $200,000 per year for an early retiree can successfully move $2.25 million to $3 million into a Roth IRA. This moves millions of dollars out of the reach of future tax increases and completely eliminates future RMD stress.
Medicare premiums are tied to your income. This is known as the Income-Related Monthly Adjustment Amount (IRMAA).
IRMAA brackets are cliffs. If you go over a threshold by even one dollar, your Medicare Part B and Part D premiums spike.
Medicare uses a two-year lookback period. This means a conversion you do in 2026 will determine your Medicare premiums in 2028.
You must model these cliffs carefully. For example, a $200,000 conversion that triggers $3,902 in IRMAA costs but saves $12,000 in future taxes is worth it. However, a $60,000 conversion that triggers the same $3,902 IRMAA cost but only saves $2,000 in future taxes is a net loss of $1,902.
Always calculate the exact math. A $100,000 conversion that saves $3,000 in future taxes but triggers $3,902 in IRMAA surcharges is a net loss of $902. Tax-exempt municipal bond interest is also added back to your MAGI when calculating these thresholds.
Roth IRAs are incredible tools for estate planning. Because they have no required minimum distributions during your lifetime, you can let the money compound for as long as you live.
When you pass away, your beneficiaries can inherit this money completely tax-free. Under the SECURE Act, most non-spouse beneficiaries must empty an inherited IRA within 10 years. If they inherit a traditional IRA, those withdrawals are fully taxable. This can push your children into their highest-earning tax brackets.
By converting to a Roth IRA today, you give your heirs a tax-free legacy. To understand how this fits into your larger estate plan, read our tax efficient wealth transfer guide.
There is often confusion around the Roth IRA five-year rules. There are actually two separate rules you must follow.
The first rule applies to penalty-free withdrawals of converted principal. Each individual Roth conversion has its own five-year clock. If you are under age 59.5, you must wait five years from the year of the conversion to withdraw the converted principal penalty-free. Once you reach age 59.5, this penalty disappears.
The second rule applies to withdrawals of earnings. To withdraw earnings tax-free, your very first Roth IRA must have been open for at least five tax years, and you must be age 59.5 or older. This clock does not restart with each conversion. It starts on January 1 of the year you made your first contribution or conversion to any Roth IRA.
A Roth conversion is an excellent way to protect your surviving spouse. When one spouse passes away, the survivor's tax filing status changes from Married Filing Jointly to Single.
Single tax brackets are much narrower. The same household income can suddenly be taxed at much higher rates. This is known as the widow tax trap.
By converting pre-tax assets to Roth assets now, you protect your surviving spouse from future tax bracket spikes.
Executing a Roth conversion strategy requires precision. Here are the most common mistakes we see:
Working with a professional who uses advanced planning technology can help you avoid these costly errors.
No. The Tax Cuts and Jobs Act permanently eliminated the ability to recharacterize, or undo, a Roth conversion. Once you execute a conversion, it is permanent. This makes upfront planning and precise tax projections essential.
The OBBBA senior deduction provides up to $6,000 per person for taxpayers age 65 and older. However, this deduction phases out at a 6% rate for MAGI above $150,000 for married couples. If you convert too much, you will phase out this deduction. This adds an effective 1.3 to 1.4 percentage points to your marginal tax rate in that phaseout range.
There is no dollar limit or income cap on Roth conversions. You can convert as much as you want from a traditional IRA or 401(k) in a single year. However, just because you can convert any amount does not mean you should. Sizing the conversion correctly is the key to minimizing your lifetime tax bill.
A Roth conversion strategy is not a one-time event. It is a multi-year, highly personalized process.
At Seek & Find Financial, we specialize in helping business owners, entrepreneurs, and high earners in Valparaiso, Chesterton, Crown Point, and Chicago build tax-efficient wealth. We avoid generic advice. Instead, we use advanced technology and personalized planning to help you make smart, structured financial decisions.
If you want to protect your hard-earned wealth from unnecessary taxes and build a clear plan for your future, we are here to help. To learn more about how we work with clients to optimize their retirement plans, visit our page on What We Do.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or guarantee against losses. Past performance may not be used to predict future results. Provided content is for overview and informational purposes only, reflect the opinions of the author, and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice.
This information is being provided only as a general source of information. These views may change as market or other conditions change. This information is not intended and should not be used to provide financial advice and does not address or account for an individual’s circumstances. Past performance does not guarantee future results and no forecast should be considered a guarantee. Please seek the guidance of a financial professional regarding your particular financial concerns.
Investment advisory services offered by duly registered individuals through Seek & find Financial LLC a Registered Investment Adviser. Licensed Insurance Professional
