I spent Sunday night with my family doing what Italians do best—making fresh pasta from scratch and cooking steaks over the firepit. As I watched everyone gather around the warmth and food, I was reminded why we plan so carefully. It's not about the money itself. It's about the freedom to create memories with the people we love.
Which brings me to today's topic: Roth conversions. This strategy can save you tens or even hundreds of thousands in taxes over your lifetime. But only if it's done right. And "right" depends entirely on one thing: understanding your financial future.
The Question Nobody's Asking
Everyone asks, "Should I do a Roth conversion?" But almost nobody asks the more important question: "Will I be in a higher tax bracket in the future?"
Because here's the fundamental truth: A Roth conversion only makes sense if you anticipate being in a higher tax bracket at some point in the future.
If you'll be in the same bracket or lower, conversions usually don't make financial sense. You're just prepaying taxes unnecessarily.
And the only way to know your future tax brackets? You need a comprehensive financial model—what I call your "time machine" or "crystal ball."
Two Clients, Same Starting Point, Opposite Answers
Let me share two real examples (names changed).
Mike, Age 62: Retired, $800,000 in traditional IRA. His financial model showed his pension plus Social Security would keep him in the 24% bracket throughout retirement. When RMDs started at 75, they barely moved the needle. Converting now at 22% to avoid 24% later? Not worth it. The juice wasn't worth the squeeze.
Sarah, Age 62: Retired, $800,000 in traditional IRA. Single, no pension, delaying Social Security until 70. Her model showed she'd be in the 12% bracket for eight years. But when RMDs kicked in at 75, combined with Social Security? She'd jump to 32%.
For Sarah, converting during those low-income years was a no-brainer. Pay 12% now, avoid 32% later. That's a 20-point spread—massive savings.
Same starting point. Opposite recommendations. The financial model made the difference.
Who Should Consider Roth Conversions
Early Retirees (Ages 60-72): If you retire before RMDs start at 75 and before you claim Social Security, you've got a golden conversion window. Your income is low. Fill up those lower brackets now before RMDs and Social Security push you higher.
High Earners Planning to Retire: Currently in the 35% bracket but your model shows you'll drop to 24% in retirement? Wait. Don't convert now. Convert after you retire at the lower rate.
People Expecting Tax Rate Increases: The Tax Cuts and Jobs Act rates were made permanent by the "One Big Beautiful Bill" in July 2025. But Congress can change anything. If you think rates are going up, converting now locks in today's rates.
Large IRA Balances: If you've got $2 million in a traditional IRA, your RMDs will be enormous—potentially pushing you into the 37% bracket. Converting portions now at 24% or 32% can save you from 37% later.
Leaving Money to Heirs: Your kids have 10 years to empty inherited IRAs. If they inherit during their peak earning years (ages 45-55), they'll pay their high rates on distributions. Convert to Roth now—you pay taxes at your (likely lower) rate, they inherit it tax-free.
Who Should Avoid Roth Conversions
Lower Brackets in Retirement: If your model shows you'll be in a lower bracket later, don't convert. You'd be paying high taxes now to avoid lower taxes later—that's backwards.
No Cash to Pay Taxes: If you have to withhold taxes from the conversion itself, you're defeating the purpose. Ideally, pay taxes from outside funds so the full conversion amount grows tax-free.
ACA Subsidies: If you're under 65 and receiving Affordable Care Act premium subsidies, a Roth conversion can wipe out those subsidies. Your model needs to account for this. Maybe wait until Medicare at 65.
Near Medicare IRMAA Thresholds: Income-Related Monthly Adjustment Amounts kick in at $103,000 (single) or $206,000 (married). If you're just below these thresholds, a conversion could cost you $800-$6,000 annually in higher Medicare premiums.
After-Tax IRA Basis: If you've made non-deductible IRA contributions, the pro-rata rule complicates conversions. Every conversion pulls out a proportionate mix of taxable and non-taxable money. You need professional help.
Step-by-Step Implementation
- Run Your Financial Model (October-November): By November, you know most of your current year income. Model your next 20-30 years to identify low-income conversion opportunities.
- Calculate Your "Conversion Budget": Determine how much room you have in your current bracket before jumping to the next.
Example: Married filing jointly, $120,000 taxable income. You're in the 22% bracket (up to $206,700). You have $86,700 of space at 22%. That's your conversion budget.
- Coordinate With Your CPA: Review overall tax situation, state tax implications, estimated payment adjustments, and Form 8606 if you have after-tax basis.
- Execute Before December 31: Call your IRA custodian, request the conversion, ensure it settles by year-end.
- Pay Taxes From Outside Funds: Ideally from savings, not withholding from the conversion itself.
- Set Aside Money for April: If not adjusting estimated payments, you'll owe at filing. Set it aside now.
- Track Five-Year Clocks: Each conversion has its own five-year waiting period for penalty-free withdrawals.
- Review Annually: Adjust your strategy based on income changes, tax law changes, and life circumstances.
Common Mistakes to Avoid
Converting Without a Plan: Someone converts $200,000 all at once, jumping from 22% to 37%. They pay $74,000 in taxes when spreading over three years would have cost $44,000 total.
Ignoring Pro-Rata Rule: You can't cherry-pick which IRA dollars to convert. The IRS aggregates all traditional IRAs.
Forgetting State Taxes: A 24% federal conversion might really cost 30%+ with state taxes.
Triggering IRMAA Unnecessarily: Converting $10,000 too much could cost $4,800 in higher Medicare premiums over two years.
Thinking You Can Reverse It: Since 2018, Roth conversions are irrevocable. No do-overs.
Converting Too Much Too Fast: Panic conversions blow through multiple brackets and trigger unintended consequences.
Not Having Cash for Taxes: Withholding from the conversion means less money growing tax-free for decades.
The Bottom Line
Roth conversions can be incredibly powerful. But they require:
- A comprehensive financial model showing your future tax brackets
- Cash to pay taxes upfront
- Professional guidance (CFP® and CPA)
- Patience and strategic thinking
If you don't have that financial model yet, that's step one. Not the conversion itself—the model.
Resources:
- Book consultation: LeonardiFamilyWealthcare.com/assessment
- 2025 Retirement Reset Checklist: LeonardiFamilyWealthcare.com
- Book: A Smarter Way to Retire: 10 Steps Towards a Confident Financial Future
Seven weeks left in 2025. If Roth conversions make sense for you, now's the time to act. But make sure you're looking through the crystal ball first.