1. What Is a Roth Conversion?

A Roth conversion is a financial strategy that allows you to move money from a Traditional IRA or other pre-tax retirement accounts into a Roth IRA. When you do this, you pay income taxes on the amount converted, but once the funds are in the Roth IRA, they grow tax-free, and qualified withdrawals are also tax-free.

Origins of the Roth IRA

The Roth IRA was introduced in 1997 as part of the Taxpayer Relief Act, championed by Senator William Roth of Delaware. The goal was to give Americans more flexibility in retirement planning and to encourage long-term savings with tax-free benefits.

✅ Benefits of Roth Conversion

• Tax-free growth: Once converted, your investments grow without future tax liability.
• No required minimum distributions (RMDs): Unlike Traditional IRAs, Roth IRAs don’t force withdrawals at age 73.
• Estate planning advantages: Heirs can inherit Roth IRAs with fewer tax complications.
• Tax diversification: Having both pre-tax and post-tax retirement accounts gives you flexibility in managing income during retirement.

⚠️ Implications to Consider

• You’ll owe ordinary income tax on the converted amount.
• Large conversions can push you into a higher tax bracket.
• May affect Medicare premiums and eligibility for tax credits.
• Timing matters—especially with changing tax laws.

2. Should You Convert All at Once or Over Time?

This decision depends on your financial situation, age, income, and tax bracket. Let’s explore both approaches through real-life examples.

Converting Over Time: The Gradual Approach

Case Study: The Martins

The Martins are a married couple in their early 50s with $1.2 million in retirement savings, including $800,000 in Traditional IRAs and $200,000 in Roth IRAs. They plan to retire in 10 years and currently earn $180,000 annually.

They want to convert their Traditional IRA funds gradually to take advantage of current tax rates before they retire. Their plan is to:

• Convert $80,000 per year for 10 years
• Stay within the 22–24% tax bracket
• Complete conversions before the current tax law sunsets in 2025

However, there’s an important rule to consider: if any of their retirement savings are in a 401(k) or other employer-sponsored plan, they cannot convert those funds to a Roth IRA unless:

• They are age 59½ or older, and
• Their plan allows in-service withdrawals

If they are under 59½ and still working, they would need to wait until retirement or separation from their employer to roll over the 401(k) into a Traditional IRA, and then begin the Roth conversions.

Fortunately, Traditional IRAs do not have this restriction. So if the Martins’ funds are already in IRAs, they can begin converting immediately.

Converting All at Once: The One-Time Strategy

Case Study: Linda

Linda is 62, recently retired, and has $500,000 in a Traditional IRA. She has minimal income now—just Social Security and a small pension totaling $30,000 annually.

She decides to convert $100,000 in one year, taking advantage of her low income and staying within the 12% tax bracket. She’ll pay relatively little in taxes and move a significant portion of her savings into a Roth IRA.

This strategy works well for retirees in low-income years, especially before RMDs begin at age 73.