Understanding Roth Conversions: Why They’re Powerful and Why They’re Confusing
Roth conversions are one of the most misunderstood tax strategies. Clients get confused, advisors sometimes talk in circles, and many people find me specifically because they want a clear plan to reduce lifetime taxes not a lecture on tax brackets.
The truth is this: Roth conversions aren’t as simple as “What’s your tax bracket today?” and “What will it be in the future?”
Your goals matter.
Your retirement timeline matters.
Your life expectancy matters.
Your heirs’ situation matters.
A Roth conversion is ultimately a math equation but several of the inputs are unknown.
What We Don’t Know
How long we’ll live
What future tax rates will be
What future investment returns will be (we can project, but not guarantee)
What our heirs’ income or tax brackets will be
What future legislation may change
Because of these unknowns, the real question becomes:
What is the goal of the conversion?
Reduce your future taxes?
Reduce your heirs’ future taxes?
Smooth out income before Social Security?
Avoid large RMDs later?
Take advantage of a temporary low‑income year?
Different goals lead to different strategies.
Roth Conversions as a Wealth‑Transfer Strategy
Many people think Roth conversions are about lowering their taxes. Sometimes that’s true but often, the biggest benefit is for your heirs.
Here’s why:
Money in a Roth IRA grows tax‑free.
Your heirs inherit it tax‑free.
There are no RMDs for you.
Heirs must empty the account within 10 years, but they owe zero tax. (10-year rule does not apply to a surviving spouse or to underage minors)
Compare that to a Traditional IRA:
Your heirs must withdraw the entire balance within 10 years. (does not apply to a surviving spouse or to underage minors)
Every dollar is taxable as ordinary income.
Large inherited IRAs can push heirs into very high tax brackets.
So when someone converts to Roth, they’re often doing it to transfer wealth more efficiently, not just to reduce their own taxes.
The IRMAA Connection
I wrote a full article on IRMAA (linked below), but here’s the short version:
IRMAA is a Medicare surcharge based on income.
It uses a two‑year lookback.
Roth conversions increase MAGI.
Higher MAGI can trigger higher Medicare premiums.
This means your tax bracket is not the only factor that determines whether a Roth conversion makes sense. For people age 63 or older, IRMAA must be part of the conversation.
Roth Conversions Aren’t Just for Retirees
Most people come to me about Roth conversions when they retire — especially in the years between retirement and taking Social Security. That’s a prime window.
But there are other times in life when conversions can be extremely valuable:
A year of unemployment
A year of under‑employment
A spouse taking time off for childcare
A bad year for a business owner
A year with a significantly lower bonus
Any temporary dip in income
The goal is simple: move money to Roth in low‑income years.
Unfortunately, many people don’t reach out during these windows because they’re focused on getting back on their feet and advisors often don’t bring it up unless the client asks.
When Advisors Should Bring Up Roth Conversions
These are the moments when advisors should proactively raise the topic:
Significant unemployment
Major pay drop
A bad bonus year
Early retirement (before Social Security)
Years with unusually low MAGI
Years where RMDs haven’t started yet
These windows can save clients tens of thousands of dollars over a lifetime — but only if someone points them out.
A Great Time to Do Roth Conversions: Down Markets
Once you’ve determined that a Roth conversion is the right move, one of the best times to actually execute the conversion is during a down market.
This is a part many people overlook, but it’s one of the most powerful advantages of the strategy.
Here’s why:
Roth conversions are taxed in dollars, but the assets move in shares.
When you convert, the IRS doesn’t care how many shares you move, they care about the dollar value of those shares at the moment of conversion.
So, if the market is down:
your account value is temporarily lower
you can convert more shares for the same tax cost
future growth happens inside the Roth, tax‑free
In other words, you’re paying taxes on depressed values while transferring the same number of shares you would have transferred anyway.
A simple example
If your Traditional IRA holds a fund that was worth $100/share last year but is now worth $75/share:
converting 1,000 shares last year = $100,000 taxable
converting 1,000 shares today = $75,000 taxable
Same shares.
Same investment.
Lower tax bill.
More future tax‑free growth.
This is why down markets create a “discount window” for Roth conversions.
Why this matters long‑term
When markets recover and historically, they always have all that rebound growth happens inside the Roth:
tax‑free for you
tax‑free for your heirs
no RMDs
no forced withdrawals
You’re essentially shifting future growth into a tax‑free environment at a lower upfront cost.
The catch: the strategy must already make sense
A down market doesn’t create a Roth conversion opportunity it simply enhances one.
You still need to consider:
your tax bracket
IRMAA
your retirement timeline
your heirs’ future tax situation
your cash flow
your long‑term goals
But once the math works, down markets make the strategy even more efficient.
Bottom Line
Roth conversions are powerful, but they’re not simple. They require:
tax planning
retirement planning
income planning
estate planning
Medicare planning
And they require understanding your goals not just your tax bracket.
Handled well, Roth conversions can reduce lifetime taxes and transfer wealth more efficiently. Handled poorly, they can trigger unnecessary taxes, IRMAA surcharges, and missed opportunities.
What Is IRMAA And Why It Matters in Retirement | High Touch Financial Planning
Disclaimer: This blog is for educational and informational purposes only and does not constitute financial, investment, tax, or legal advice. Investing involves significant risk, including the potential for total loss of principal. Past performance is not a guarantee or reliable indicator of future results. All information, data, and ideas presented should be discussed in detail with a qualified financial advisor, tax advisor, or legal professional prior to implementation.
Disclaimer: This blog is for educational and informational purposes only and does not constitute financial, investment, tax, or legal advice. Investing involves significant risk, including the potential for total loss of principal. Past performance is not a guarantee or reliable indicator of future results. All information, data, and ideas presented should be discussed in detail with a qualified financial advisor, tax advisor, or legal professional prior to implementation.
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Cliff Brockmann, CFP®, EA is a flat fee financial advisor and the owner of High Touch Financial Planning. This article first appeared on the High Touch Financial Planning website and is republished on Flat Fee Advisors with permission.