Roth Conversion Strategy: The Five Questions We Ask Before Converting a Dollar

A Roth conversion strategy makes sense when you can pay the tax today at a lower rate than you’d pay on the same dollars later. That’s the whole test. John Shedenhelm runs five questions before recommending one, and three of them regularly stop the conversation before any money moves.

What a Roth Conversion Actually Does

A conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You add the converted amount to this year’s taxable income and pay ordinary income tax on it. In exchange, that money grows untaxed and comes out untaxed, with no required minimum distributions for the rest of your life.

You are not avoiding tax. You are choosing when to pay it.

That framing matters because most conversion pitches skip it. Converting is a bet that your rate today beats your rate later. When that bet is right, the payoff is large. When it’s wrong, you’ve prepaid tax for nothing and lost the use of that money for decades.

Did You Know? Conversions are permanent. The IRS states that a conversion made on or after January 1, 2018 cannot be recharacterized, meaning the ability to undo one is gone. Whatever you convert in December is locked in, which is why the analysis has to happen before the year ends, not at tax time. (IRS)

Question 1: What Bracket Are You In Now Versus at 73?

This is the anchor question, and it requires a projection rather than a guess.

Project your pre-tax balance to age 73. Calculate the first required minimum distribution. Add Social Security, pension income, and any other taxable sources. That’s the bracket your future self is in.

Now compare it to today. Here are the 2026 married-filing-jointly boundaries you’re working against:

If today’s rate is lower, converting up to the top of your current bracket is the play. If today’s rate is higher, wait.

One assumption worth retiring: the 2017 tax rates were made permanent in 2025 legislation, so the scheduled 2026 rate increase never happened. (Tax Foundation) Conversion plans built on “convert before rates go up” need a new reason to exist.

Question 2: Where Is the Tax Money Coming From?

This is where the advisors at Eagle Financial Solutions say no most often.

The conversion only works well if you pay the tax bill from outside funds, meaning a taxable account or cash. Withholding the tax from the conversion itself shrinks the amount that lands in the Roth, and if you’re under 59½, the withheld portion counts as a distribution subject to a 10% penalty.

Someone with $800,000 in an IRA and $20,000 in cash cannot meaningfully convert. Every dollar of tax comes out of the conversion, which defeats the arithmetic. We tell those households to build taxable savings first and revisit in a few years.

Pro Tip: A useful rule of thumb: you need roughly 25 cents of outside cash for every dollar you convert. If you don’t have it, you’re not ready, no matter how good the bracket looks.

Question 3: When Will You Need the Money?

Roth conversions come with their own five-year clock, separate from the one that applies to Roth contributions.

Each conversion starts its own five-year period. Withdraw converted principal before that period ends and before age 59½, and you owe a 10% penalty on it, even though you already paid income tax on the conversion. (Fidelity)

Once you’re past 59½, the conversion clock stops mattering for penalties, though a separate five-year rule still governs whether earnings come out tax-free.

If you’re 58 and planning to spend that money at 61, a conversion is the wrong move. If you’re 55 and building a bridge to age 70, the clocks work in your favor.

Question 4: What Does It Do to Your Other Costs?

A conversion raises adjusted gross income, and several things in the tax code key off that number.

Medicare surcharges. In 2026, single filers above $109,000 and joint filers above $218,000 pay a surcharge on top of the $202.90 standard Part B premium. It’s a cliff, not a phase-in, and the lookback is two years. A conversion at 63 shows up as a Medicare bill at 65.

Marketplace health subsidies. Retirees under 65 buying coverage through the exchange can lose premium tax credits worth thousands by converting. This routinely outweighs the conversion benefit for early retirees, and it’s the trap we see missed most often.

Social Security taxation. More income means more of your benefit becomes taxable, up to 85%. Converting before you claim avoids stacking the two.

Capital gains. Conversions consume the same income space as the 0% long-term capital gains bracket, which runs to $98,900 for joint filers in 2026. You generally can’t harvest gains and convert in the same year.

Question 5: Who Inherits This Money?

This question changes the answer more than people expect.

Most non-spouse heirs must empty an inherited IRA by the end of the 10th year after death. Under the final regulations, if the original owner had already started RMDs, beneficiaries also have to take annual distributions during those 10 years. (IRS — retirement topics: beneficiary)

Those withdrawals land on top of your heir’s income during their peak earning years. Leaving a $1 million traditional IRA to a child in the 32% bracket means a large share goes to taxes on a schedule they don’t control.

An inherited Roth still empties in 10 years, but comes out tax-free. Converting at 22% so your heirs don’t withdraw at 32% is often the strongest case for a conversion, and it belongs in legacy and estate planning rather than your own retirement math.

The reverse also holds. If your IRA is going to charity, converting is a waste. A qualified charity pays no tax on an inherited IRA, so prepaying that tax yourself throws money away.

Pro Tip: If you’re leaving money to several heirs in different tax brackets, split the beneficiary designations by account type instead of splitting each account evenly. Send the Roth to the high earner and the traditional IRA to the heir in a lower bracket, or to charity. Same total inheritance, meaningfully less tax.

Did You Know? Married couples should look at the widow’s penalty. When one spouse dies, the survivor files as single, where the 22% bracket starts at just $50,401 of taxable income in 2026 instead of $100,801. Conversions done while both spouses are alive help protect the survivor from that jump.

Putting It Together

Conversions work best in the window between retirement and 73, when earned income has stopped and RMDs haven’t started. That window is usually five to twelve years long, and it’s the core of both our tax-smart retirement strategy and the withdrawal sequencing that follows.

Partial conversions across several years beat one large conversion nearly every time. Spreading the income keeps you inside a lower bracket and below the IRMAA cliffs, which is exactly what a tax-efficient wealth plan is built to do.

Frequently Asked Questions

Is doing a Roth conversion a good idea?

A conversion is a good idea when your current tax rate is lower than the rate you expect at 73 or the rate your heirs will pay. It’s a poor idea if you must pay the tax from the converted funds or you’ll need the money within five years.

What’s the best Roth conversion strategy?

Convert partial amounts each year up to the top of your current tax bracket, during the low-income window between retirement and age 73. Spreading conversions across multiple years avoids pushing income into higher brackets or across Medicare surcharge thresholds.

How much tax will I pay on a Roth conversion?

The converted amount is added to your ordinary income for the year and taxed at your marginal rate. A $50,000 conversion for a couple in the 22% bracket costs about $11,000 in federal tax, plus any state income tax.

Can I still convert after age 73?

Yes, but you must take your required minimum distribution first, and the RMD itself cannot be converted. Conversions after 73 still help reduce future RMDs and improve what heirs inherit.

The Bottom Line

A Roth conversion strategy is a tax-rate arbitrage, not a product, and the five questions above decide whether the arbitrage exists in your case. Bracket projection, outside cash, time horizon, downstream costs, and heirs are the whole analysis.

Conversion decisions have a hard December 31 deadline and cannot be reversed. Schedule a conversion analysis with John Shedenhelm well before year-end so the math is done while there’s still time to act on it.

This article is for educational purposes and is not individualized investment, tax, or legal advice. Tax figures reflect 2026 federal rules and are subject to change. Roth conversion outcomes depend on filing status, state taxes, and personal circumstances. Consult a qualified tax professional before converting.