5 Signs a Roth Conversion Is the Wrong Move for You

A Roth conversion trades a known tax bill now for tax-free withdrawals later. The IRS treats conversion distributions as includible in your gross income in the year you receive them, and the statute adds to income any amount that “would be includible were it not part of a qualified rollover contribution” under 26 U.S.C. § 408A(d)(3)(A)(i). Treasury Regulation 1.408A-4 confirms that an amount in a traditional IRA may be converted. The rules allow it, but that doesn’t make it the right call for you. For many households near retirement, the math points the other way. Here are five signs it points against you.

Your Tax Rate Is Higher Now Than It Will Be Later

A conversion pays off when the rate you pay today is at or below the rate you would pay on a later withdrawal. For tax year 2026, married couples filing jointly pay 12% for incomes over $24,800, 22% for incomes over $100,800 and 24% for incomes over $211,400.

Example Household A (married filing jointly) has 2026 taxable income of $150,000 and converts $50,000.

1. New taxable income: $150,000 + $50,000 = $200,000. That stays below $211,400, so the full conversion falls in the 22% bracket.
2. Tax on the conversion: $50,000 × 22% = $11,000.
3. If the couple expects the 12% bracket in retirement, taking out the same $50,000 later costs $50,000 × 12% = $6,000.
4. Extra cost of converting: $11,000 − $6,000 = $5,000.

A planned move to a state with no income tax widens the gap. If you convert before the move, you pay state tax that a withdrawal after the move would avoid. What changes the answer: large future required distributions, a pension, or a surviving spouse moving to single-filer brackets can push your retirement rate higher. Those quiet years between your last paycheck and your first RMD are often when conversions make the most sense, a window we sized up in a free Roth guide.

You Pay the Conversion Tax Out of the IRA

Go back to Household A. If the $11,000 tax bill is withheld from the IRA, only $50,000 − $11,000 = $39,000 reaches the Roth. The waiver of the early-distribution penalty in § 408A(d)(3)(A)(ii) covers only amounts actually converted. The withheld amount counts as an ordinary distribution, and owners under 59½ can owe the 10% additional tax on it: $11,000 × 10% = $1,100. Instead, consider a smaller conversion sized to what your taxable savings can cover. If you have cash outside the IRA, this objection goes away.

You Need the Converted Money Within Five Years

Roth withdrawals follow a set order: regular contributions first, then conversion and rollover contributions on a first-in, first-out basis, with the taxable portion coming out first and earnings last. Under § 408A(d)(3)(F), converted amounts taken out within the 5-taxable year period beginning with the taxable year in which such contribution was made are treated as taxable for purposes of the early-distribution penalty. Earnings are tax-free only in a qualified distribution, which generally requires reaching age 59½ and passing a separate 5-taxable year period under § 408A(d)(2). A short horizon also leaves little time for tax-free growth to make up for the upfront bill. If you are past 59½ and the money can stay invested for a decade or more, the case gets stronger.

You Sit Just Below an IRMAA Tier or Rely on ACA Credits

The standard 2026 Part B premium is $202.90. Joint filers with modified adjusted gross income above $218,000 ($109,000 for single filers) pay $284.10, an $81.20 monthly surcharge, plus a $14.50 Part D adjustment.

Example Household B (married, both on Medicare) has MAGI of $200,000 and converts $50,000.

1. New MAGI: $200,000 + $50,000 = $250,000, in the 2026 tier above $218,000 that runs up to $274,000.
2. Part B surcharge: $81.20 × 12 months × 2 people = $1,948.80.
3. Part D surcharge: $14.50 × 12 months × 2 people = $348.

Pre-Medicare retirees face a similar trap. The ACA premium tax credit depends on household income, which the statute builds from the modified adjusted gross income of the taxpayer under § 36B(d)(2), so conversion income can reduce the credit. One option is to convert in amounts that stop below the next threshold. A one-time surcharge can still be worth paying if it heads off years of larger required distributions.

Your IRA Is Headed to Charity

A charity pays no income tax on an inherited traditional IRA. Converting means you pay tax on dollars that could have reached the charity untaxed. Qualified charitable distributions offer another option. Section 408(d)(8) excludes them from gross income for owners who have attained age 70½, and a QCD will count towards your required minimum distribution.

The case for converting on behalf of heirs is also weaker than many people assume. The 2026 basic exclusion amount for estates is $15,000,000, and among estate tax returns filed in 2024, 4,532 were nontaxable compared with 2,663 taxable. If your heirs are in high brackets and the charity gets only a small share, converting the portion meant for family can still make sense.

Run These Checks Before You Convert

Compare your marginal rate today with your expected rate in retirement, including state tax. Confirm that cash outside the IRA can cover the bill, that the money can stay put for at least five years, and where your MAGI sits against the 2026 IRMAA and ACA thresholds. If two or more of these signs apply to you, partial conversions spread over several years, QCDs, or no conversion at all may serve you better than a large one-time move.

Contact [email protected] for any questions or corrections.