Roth Conversion
Why it matters for your retirement paycheck
A Roth conversion is a bet on paying tax now at a known rate instead of later at an unknown one. It tends to make the most sense in years when your taxable income is unusually low — for example, the gap years after retiring but before Social Security and RMDs begin — since that's when the tax cost of converting is cheapest. Done carelessly, it can also push you into a higher bracket or trigger an ACA subsidy cliff or IRMAA surcharge in the conversion year, so the amount converted matters as much as the decision to convert at all.
An example
Suppose you convert $30,000 from a traditional IRA to a Roth IRA in a year when your other income is low. The $30,000 is added to that year’s taxable income. If all of it falls in the 12% bracket, the conversion costs $3,600 in federal tax now, and that money can then grow tax-free for qualified withdrawals later. The same conversion also raises your MAGI, which can reduce ACA subsidies or trigger IRMAA two years later. Illustrative figures only.
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