Good Reasons Not to Do a Roth Conversion
Back in June this newsletter made the case for Roth conversions done in the right window, and the internet has been making the louder version of that case nonstop: convert everything, taxes are only going up, do it now. So this week I am writing the issue nobody posts. The honest reasons to convert less, convert later, or not convert at all. An advisor who only tells you when to convert is selling something. This is the other half.
WHAT A CONVERSION ACTUALLY IS, ONE MORE TIME
A Roth conversion is prepaying tax at today’s rate so the money comes out tax free later. That is the whole machine. It only wins if today’s rate is lower than the rate you would otherwise pay down the road. Which means every conversion decision is the same question: your rate now versus your rate later. Everything else is noise.
THE REASON I USE MOST OFTEN
Here is the case where I talk clients out of converting more than any other. A couple a few years from retirement, earning strong income, but look at where the paycheck actually goes: a big slice to the mortgage, a big slice into the 401(k)s. They live on far less than they make. Now fast forward three years. The mortgage is paid off, the saving is finished, and the income they actually need to replace is a fraction of the old paycheck. Their tax rate falls on its own, without a single clever move. Converting today means volunteering for the 32 percent bracket plus Ohio’s 2.75. Waiting until retirement means converting at 24 percent, and if the Sarasota plans come true, the state rate becomes zero. That is 10.75 cents saved on every single converted dollar, and the entire strategy was patience.
THE OTHER GOOD REASONS
The tax money would come out of the IRA itself. Paying conversion tax from the account you are converting shrinks the engine, and the math gets much harder to win. Medicare is within two years. IRMAA looks back at your income from two years ago, so a big conversion at 63 or 64 can raise your premiums at 65. And then the reason almost nobody checks: who is this money actually for? If a charity is the beneficiary, the charity pays no tax at all, and every dollar of conversion tax you prepaid was solving a problem that never existed. If your kids are in lower brackets than you, letting them pay their rate later can beat you paying your rate now. The destination changes the math.
THE REASON THAT IS NOT ABOUT TAXES
Bracket space is a resource, and a conversion is only one of the things you can spend it on. Spending up to the top of your current bracket on living, the trip, the kitchen, the season tickets, is a legitimate use of that space. So is giving with warm hands while you are here to watch it matter. I have never had a client turn down a trip to Portugal because they did not want to pay a certain tax rate, and I would not let a conversion schedule talk them out of it either. Experiences overrule taxes, as long as the plan works.
A SIMPLE EXAMPLE
Paul and Renee are 62 and 61, in New Albany, earning about $310,000 with $1.4 million in traditional accounts. The internet says convert now. The analysis says look closer: their mortgage retires next year, the 401(k) contributions stop when they do, and the life they actually live costs about $110,000. Converting today happens at 32 plus 2.75. Converting in three years, retired and quite possibly in Sarasota, happens at 24 plus nothing. On the $600,000 they eventually plan to convert, waiting is worth roughly $64,000. So this year, instead of converting, they spent their bracket space on the things they had been putting off: the Portugal trip and a warm-hands gift toward their daughter’s house. The conversions start the first full year of retirement, on schedule, at the cheaper rate. Doing nothing was the strategy. It just was not accidental nothing.
THE WHOLE IDEA
A Roth conversion is a tool, not a belief system. The question is never whether conversions are good. It is your rate now versus your rate later, and how much, because vague fear of future taxes is not a number. Sometimes the answer is convert this year. Sometimes it is wait three years and save 10 cents on the dollar. Knowing which year is which is the kind of thing worth having someone run the numbers on, before the internet talks you into paying a bill early.
STILL WORKING? FILE THIS AWAY
The cheapest conversion years of your life may arrive uninvited. A layoff, a sabbatical, a gap between jobs: any year where the income drops is a year where converting pre-tax dollars to Roth gets dramatically cheaper, and it is definitely worth maximizing that window while it is open. Nobody wants the down year. But if one shows up, the same brackets that made conversions expensive at full salary swing wide open, and using them on purpose can turn a hard season into the best tax move of your decade.
WORTH A READ
Medicare Premiums: Rules for Higher-Income Beneficiaries (SSA.gov)
2026 Federal Income Tax Brackets (Tax Foundation)
If you are sitting on a big traditional balance and wondering whether this is a convert year or a wait year, reply anytime. Happy to run your rate now against your rate later and let the numbers decide. No pressure, just a conversation.
Curious what working together looks like? There is more at jcsretirementtaxadvisors.com, and if a conversation sounds easier, you can grab 30 minutes on my calendar whenever it suits you.
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This newsletter is for education only and is not tax, legal, or investment advice for your situation.