Overview
- A Roth conversion moves money from a traditional IRA or 401(k) into a Roth account and the converted amount is taxed in the year you switch it.
- After conversion, future growth and withdrawals are tax free and the account has no required minimum distributions.
- The strategy works best when you can pay a lower tax rate on the conversion, such as in early retirement with little taxable income.
- Converting while still working or drawing large withdrawals can push you into a higher bracket, which can erase the expected benefit.
- Higher reported income from a conversion can also trigger Medicare IRMAA surcharges for Parts B and D, and paying tax now may be a poor estate move if heirs inherit in a lower tax bracket.