Roth IRA Conversion Timing: 2026 Tax Strategy Guide

What is a Roth conversion?

A Roth conversion is the process of moving money from a traditional IRA to a Roth IRA. You pay income taxes on the amount you convert in that tax year. In exchange, the converted money grows tax-free forever, and you never pay taxes on those withdrawals, making it valuable for long-term retirement planning.

Traditional IRA vs. Roth IRA: The tax difference

A traditional IRA lets pre-tax dollars grow tax-deferred. You pay taxes later when you withdraw the money in retirement.

A Roth IRA works differently. You fund it with after-tax dollars, meaning you've already paid income tax on your contributions. The payoff? Your withdrawals after age 59½ are completely tax-free if the account has been open for at least five years.

Converting your traditional IRA to a Roth means paying taxes on the converted amount now. But it also means tax-free growth and withdrawals for the rest of your life.

Traditional vs. Roth at a Glance

The conversion sweet spot: early retirement timing

The period between retirement and age 73 offers the best opportunity for conversion for many people.

Here's why this window works so well:

• Your employment income has stopped or decreased significantly
• Social Security payments may not have started yet
• Required minimum distributions (RMDs) haven't kicked in at age 73
• You're likely in a lower tax bracket than during your peak earning years

This creates an ideal environment for converting traditional IRA funds at lower tax rates before your income increases again.

Market timing: Converting during downturns

Market declines can create powerful conversion opportunities.

When your IRA balance is down 20%, you pay taxes on the temporarily lower value. For example, instead of paying taxes on a $500,000 balance, you might pay on just $400,000.

The recovery happens inside your tax-free Roth account. You essentially transfer future growth from taxable to tax-free status at a discount.

Consider this scenario: Converting a $200,000 traditional IRA during a 20% market decline saves you $9,600 in taxes (paying on $160,000 instead of $200,000 at a 24% tax rate).

However, never base conversion decisions solely on market timing. Tax benefits and time horizon matter more than trying to time the market perfectly.

Important: How Roth conversions affect Medicare costs

IRMAA warning: Medicare premium increases

When you convert to a Roth, your income increases. This triggers IRMAA (Income-Related Monthly Adjustment Amount), which adds surcharges to your Medicare premiums.

Example: A $100,000 conversion might cost you:

• $24,000 in income taxes (24% bracket)
• $500-$2,000 extra in Medicare premiums

Total conversion cost: $24,500-$26,000

Always factor in Medicare impact before converting if you're age 62-65 or already on Medicare.

When NOT to convert: Costly scenarios to avoid

Roth conversions don't make sense for everyone.

Avoid conversions if:

• You're already in a high tax bracket, and the conversion would push you even higher
• You're in your late 70s or 80s without enough time to recoup the conversion taxes through tax-free growth
• The conversion affects Medicare premiums through IRMAA, potentially doubling your Medicare costs
• You lack separate funds to pay the conversion taxes and would need to use retirement account money
• Your beneficiaries are in very low tax brackets and would pay less tax than you would on the conversion

Case Study: Smart conversion strategy

Meet Sarah, a 62-year-old recent retiree with $800,000 in traditional IRAs.

Sarah's situation:

• No longer working (dropped from 32% to 12% tax bracket)
• Social Security doesn't start until age 67
• RMDs don't begin until age 73

Her strategy: Convert $63,000 annually for five years, staying within the 22% tax bracket—total conversion taxes: approximately $70,000.

The result: She moves $315,000 to tax-free status and avoids future RMDs on that amount. Her beneficiaries inherit tax-free Roth assets instead of taxable traditional IRAs.

Counter-example: David, age 68, earns $150,000 in consulting income and pays for Medicare. A $100,000 conversion would cost $32,000 in taxes plus $1,800 in extra Medicare premiums. At his age, he's unlikely to recoup these costs through tax-free growth. David should skip conversion and instead focus on tax-efficient withdrawal sequencing.

RMD Rules: Converting after age 73

RMDs complicate but don't eliminate conversion opportunities.

Starting at age 73 (75 for those born after 1960), you must take required distributions from traditional IRAs. You cannot convert your RMD amount to a Roth—you must take it first.

However, you can still convert additional traditional IRA funds beyond your RMD requirement. This becomes part of managing your overall tax bracket each year.

Planning conversions before RMDs begin gives you maximum flexibility and control over your tax situation.

Year-end conversion deadlines and strategy

Unlike IRA contributions, conversions must be completed by December 31st with no extensions.

Many financial advisors prefer year-end conversions because they allow for:

• More accurate income projections for the tax year
• Better assessment of which tax bracket you'll finish in
• Precise conversion amounts to optimizing tax efficiency

However, converting earlier in the year provides more time for tax-free growth on the converted amount.

2026 income limits and backdoor conversions

High earners face Roth IRA contribution limits, but can still convert.

For 2025, you cannot contribute directly to a Roth IRA if your income exceeds:

• $168,000 for individuals
• $252,000 for married couples filing jointly

But there are no income limits for conversions. This makes the backdoor Roth strategy valuable for high-income earners who want Roth benefits.

5 key factors for your conversion decision

Consider these key factors:

1. Current vs. expected future tax rates - both personal and federal
2. Available funds to pay conversion taxes without touching retirement accounts
3. Time horizon for tax-free growth to offset conversion costs
4. Impact on Medicare premiums and other income-based benefits
5. Your beneficiaries' likely tax situations

The effectiveness of a Roth conversion depends heavily on your specific circumstances and your withdrawal strategy across various assets, both now and in retirement.

How to execute a Roth conversion: 5 steps

1. Review your complete IRA picture - Gather statements from all traditional IRAs, SEP-IRAs, and SIMPLE IRAs you own. The IRS aggregates all these accounts for conversion purposes.
2. Calculate your tax impact - Work with a tax professional to determine how much you can convert without jumping tax brackets. Many people convert just enough to "fill" their current bracket.
3. Choose your conversion strategy - Decide whether to convert all at once or spread conversions over multiple years. Consider market conditions and your income that year.
4. Contact your financial institution - Tell your bank or brokerage you want to convert specified amounts from traditional to Roth. They'll provide the necessary paperwork and handle the transaction.
5. Report the conversion on your tax return - File Form 8606 with your tax return to report the conversion. Your institution will send you a 1099-R form documenting the transaction.

Partial conversion strategy

You don't have to convert everything at once.

Partial conversions let you:

• Stay within your current tax bracket
• Spread conversion taxes across multiple years
• Adjust strategy based on market conditions and tax law changes
• Maintain flexibility in your overall retirement plan

Consider converting just enough to "fill up" your current tax bracket without jumping to the next higher rate.

4 Roth conversion mistakes to avoid

Mistake #1: Using retirement money to pay conversion taxes

Using IRA funds to pay taxes defeats the purpose. You'll owe early withdrawal penalties (10%) plus taxes on that money if you're under age 59½. Always use savings or current income instead.

Mistake #2: Converting too much in one year

Converting your entire balance at once pushes you into the highest tax brackets, potentially costing 35-37% in taxes. Spread conversions over 3-5 years to stay in lower brackets and save thousands.

Mistake #3: Ignoring Medicare impact

Conversions increase your income, which can trigger IRMAA surcharges on Medicare premiums. A $100,000 conversion might cost an extra $1,500-$2,000 in Medicare charges. Many people forget to calculate this.

Mistake #4: Converting without a tax plan

Converting without coordinating your Social Security timing, investment income, and other factors creates inefficiency. Work with a tax professional to optimize your entire retirement income picture.

Ready to explore your conversion opportunity?

Roth conversions can save you thousands in taxes, but only if executed correctly for your specific situation. The current environment, with lower tax rates and market volatility, creates unique opportunities.

Associated Bank's financial professionals specialize in retirement tax planning. We'll help you:

• Calculate your exact conversion tax cost
• Optimize for your tax bracket and income situation
• Factor in Medicare, Social Security and RMDs
• Develop a multi-year conversion strategy
• Coordinate with your overall retirement plan

Ready to explore whether a Roth conversion makes sense for your situation? Connect with Associated Bank's financial professionals to review your specific circumstances and develop a personalized retirement strategy.