Roth Conversions: Don’t Set It and Forget It
Roth Conversions: Don't Set It and Forget It
Why a strategy that made perfect sense last year might need a rethink this year — and every year after.
There's a particular kind of financial advice that sounds responsible but can quietly cause harm. It usually goes something like this: "We've run the numbers, we've built the plan, now just stick to it." And for many things in financial planning, that's reasonable guidance.
Roth conversions are not one of those things.
A Roth conversion strategy isn't a light switch you flip once. It's a dial you adjust every year — sometimes significantly — as your life, your tax situation, and the rules around you continue to change. If you or your advisor built a conversion plan two or three years ago and nobody's looked at it since, there's a good chance the assumptions underneath it no longer hold.
Here's a tour through the things that tend to shift, and why each one can matter more than you'd think.
Tax Law Doesn't Stand Still
The current tax brackets and rates trace back to the Tax Cuts and Jobs Act of 2017, and those provisions were made permanent through the One Big Beautiful Budget Act — so the rates you see today are no longer on a timer. That's actually good news for planning. But "permanent" doesn't mean "low forever."
By historical standards, today's federal income tax rates are still quite favorable. The top rate has been as high as 90% in prior decades; even in recent memory, the top bracket sat at 39.6%. Whether rates climb from here is ultimately a political question, but the fiscal math — persistent deficits, entitlement spending pressure, an aging population — gives many planners reason to expect higher rates at some point in the future. The window we're in now may look like a bargain in hindsight.
That argument doesn't mean convert everything immediately. It means the question of future rates deserves a fresh look every year — not a fixed assumption you baked into a plan years ago and never revisited. Your conversion plan should be revisited every time tax law changes, every time new legislation gets proposed, and every time your own marginal rate shifts.
The Widow's Tax: When Your Filing Status Changes Everything
This one doesn't get enough attention. When a spouse passes away, the surviving partner usually faces a significant and painful tax surprise: they go from filing jointly to filing as a single taxpayer. The standard deduction drops roughly in half. The tax brackets compress. The same income that fit comfortably in the 22% bracket when filing jointly can suddenly land in 32% territory.
At the same time, the survivor often inherits retirement accounts — 401(k)s, IRAs — that were never converted. Now those required minimum distributions are coming out at a higher rate, on a single return, possibly for decades.
Proactively converting while both spouses are living — especially in the years before RMDs begin — can substantially reduce this exposure. But it only works if the plan gets updated when health changes, when estate plans are revisited, or when a spouse's health trajectory shifts.
Your Health and Life Expectancy Aren't Static Assumptions
How long you're likely to live changes the math on Roth conversions in a direct way. The longer your time horizon, the more years a Roth account has to compound tax-free, and the more valuable a conversion becomes. Shorter time horizons tilt the analysis the other way — you're paying taxes now, and the tax-free growth benefit has less runway to materialize.
A new diagnosis, a change in functional health, a family history that's become more salient with age — all of these are legitimate reasons to revisit whether the conversion volume that made sense before still makes sense now. This isn't pessimism. It's just accurate planning.
Charitable Intent Can Change the Whole Picture
Pre-tax IRA dollars and charitable giving are a natural pairing that many people don't fully use. Qualified Charitable Distributions (QCDs) allow IRA owners 70½ and older to direct up to $105,000 annually (indexed for inflation) straight from an IRA to a qualifying public charity, completely tax-free. That money never shows up as income. It satisfies your RMD. It keeps your AGI lower — which has downstream effects on Medicare premiums, Social Security taxation, and everything else that's income-sensitive.
One important constraint: QCDs cannot go to donor-advised funds, private foundations, or supporting organizations. They must go directly to a qualifying public charity. If your giving is primarily channeled through a DAF, QCDs aren't the right mechanism — which is actually a reason to think carefully about your conversion strategy, because you lose one of the most tax-efficient tools for drawing down pre-tax dollars.
If charitable giving is part of your picture, keeping pre-tax money in an IRA can actually be smarter than converting it. You're not avoiding taxes by leaving it there — you're earmarking it for an entity (a charity) that pays zero taxes on it anyway.
And then there's the sequence-of-returns question. A lot of retirees who planned conservatively find themselves in their late 70s or early 80s with significantly more than they expected — because markets were kind, spending was modest, and compounding kept working. When that happens, the calculus on conversion shifts: the assets are more likely to pass to heirs than to get spent down, charitable intent may become more central to the plan, and the QCD becomes an even more powerful annual tool. If you find yourself with more than you thought you'd have, that's not a problem — but it is a reason to revisit the plan.
Investment Returns Change Your Balance — and Your Exposure
A strong market year can quietly grow your pre-tax accounts well beyond what your original projections assumed. What looked like a manageable RMD burden at 72 can become a much larger one if the portfolio has compounded significantly. The reverse is also true — down years can create windows where conversion makes particular sense, because you're converting fewer dollars at the same tax cost.
A conversion strategy built on static account balance assumptions ages poorly. If you modeled out conversions five years ago based on a $900,000 IRA, and that account is now $1.4M, the plan needs to be rerun.
Legacy Goals and Inheritance Planning Evolve
The SECURE Act changed how inherited IRAs work for most non-spouse beneficiaries. The old "stretch IRA" — where a child could draw down an inherited IRA over their own lifetime — is largely gone. Now, most beneficiaries have ten years to empty the account, which means distributions get compressed into a shorter window, often hitting during peak earning years.
If leaving assets to children or grandchildren is part of your intention, a pre-tax IRA can be a tax-inefficient inheritance. A Roth IRA passes differently: still subject to the 10-year rule, but the distributions come out tax-free. The tax burden you absorbed during conversion is the tax burden your heirs don't have to pay later.
There's an additional nuance here worth understanding. Under the 10-year rule, non-spouse beneficiaries aren't required to take annual distributions — they simply have to empty the account by the end of year ten. A savvy heir who doesn't need the money immediately can leave the entire Roth balance invested and untouched for the full decade, letting it compound tax-free the entire time, and then take one lump-sum distribution at the end that still comes out completely tax-free. That's a meaningful planning advantage that a pre-tax inherited IRA simply cannot replicate — those distributions are always taxable, regardless of timing.
That said, legacy goals change. Children's financial situations change. Family structures change. The relative priority of leaving assets versus spending them down or giving them to charity shifts over time. None of this can be captured once and held fixed.
You Might Be Inheriting Pre-Tax Assets Too
Here's a scenario that doesn't come up enough: you're in your 60s or early 70s, doing thoughtful conversion planning, and then a parent passes away and leaves you a large inherited IRA. Suddenly your pre-tax exposure isn't just what you saved — it's what you saved plus what you inherited, with a 10-year clock ticking on the inherited account.
Depending on the size of the inheritance and your own income in those years, this can be a significant tax event. You're forced to draw down the inherited IRA over 10 years whether you want to or not, and those distributions will likely land on top of your own RMDs, Social Security, and any other income. The bracket pressure can be substantial.
This is a reason to be proactive about your own conversions while you're still healthy and your income is manageable — before a potential inheritance further loads the pre-tax side of the ledger. You can't predict timing, but you can acknowledge the possibility in your planning. If your parents have substantial retirement accounts and you're a likely beneficiary, that context belongs in your Roth conversion analysis.
Where You Live Can Change the Math Significantly
State income taxes are easy to overlook in Roth conversion planning, but they're a real part of the cost. If you live in a state with no income tax — Nevada, Florida, Texas, Washington, and others — a Roth conversion is somewhat cheaper than it would be in a high-tax state like California or New York, where state rates can add 9–13% on top of federal.
What this means practically: if you're currently in a low or no-income-tax state and you're considering relocating to a higher-tax state later in retirement, that's a reason to do more conversion now while the state tax cost is lower. Conversely, if you're planning to leave California and retire somewhere without a state income tax, the state tax component of the conversion cost falls away in future years — which may affect the urgency of converting aggressively today.
Retirement moves are common, and state tax environments vary enormously. If a move is even a possibility, it belongs in the conversation when you're setting your annual conversion strategy.
IRMAA: The Two-Year Lag That Surprises People
Medicare Part B and D premiums are based on income from two years prior. A large Roth conversion in 2024 will show up in your Medicare premiums in 2026. This isn't a reason to avoid conversions — it's just a cost that should be part of the analysis. When it's not accounted for, people sometimes feel blindsided when the premium surcharge arrives.
And it's not a one-time calculation. IRMAA thresholds adjust annually. Your income from conversions, Social Security, RMDs, and other sources fluctuates. A plan that carefully managed Medicare premiums two years ago may not be managing them the same way today.
So What Should the Annual Review Actually Look Like?
A good Roth conversion review at the start of each year touches most of the following:
- Current and projected marginal tax rates — both federal and state
- Updated account balances across all pre-tax, Roth, and taxable accounts
- Social Security income, if it's begun — or updated breakeven analysis, if it hasn't
- RMD amounts, beginning or projected
- Medicare premium exposure (IRMAA thresholds for the coming two years)
- Any changes in health, life expectancy, or care planning assumptions — yours and your partner's
- Charitable giving plans — QCDs to qualifying public charities, donor-advised fund strategy, bequests
- Changes in legacy goals and beneficiary designations
- Whether any large one-time income events (asset sales, business income, inheritances) will affect available bracket space
- Whether a potential inheritance of pre-tax assets from a parent should factor into your own conversion pace
- Whether a planned or possible state residency change affects the cost of conversion now versus later
The point isn't to manufacture complexity. It's to make sure the conversion amount you choose in a given year is actually grounded in your current situation — not a plan that was built when things looked different.
Roth conversions are one of the more powerful tools available in retirement tax planning. They're also one of the easier ones to misuse when the plan isn't maintained. The underlying question — "should I pay taxes now or later?" — has a different answer depending on who you are, what you own, what you intend to do with your money, and what the rules look like in any given year.
That's not a question you answer once. It's a question you revisit every year, with a clear head and current numbers.
Your Situation Has Probably Changed
If you haven't revisited your Roth conversion strategy recently — or you're not sure if you ever had one — let's talk. A focused review can clarify what the right move looks like for you this year.
Schedule a Discovery Call