A Roth conversion moves money from a traditional IRA or 401(k) — where you got a tax deduction going in and owe tax on withdrawal — to a Roth IRA, where withdrawals in retirement are completely tax-free. The conversion triggers income tax in the year you convert. The entire strategy is to time those conversions for years when your income (and therefore tax rate) is unusually low.
Why low-income years are conversion windows
Federal tax brackets create arbitrage opportunities when income drops.
The 2025 federal income tax brackets for a single filer:
| Taxable Income (Single, 2025) | Tax Rate | Conversion opportunity |
|---|---|---|
| $0 – $11,925 | 10% | Convert up to this amount at 10% |
| $11,926 – $48,475 | 12% | Fill this bracket — still low rate |
| $48,476 – $103,350 | 22% | Often worth converting to top of this bracket |
| $103,351 – $197,300 | 24% | Marginal — depends on your situation |
| $197,301 – $250,525 | 32% | Rarely worth converting here unless forced |
| Above $250,525 | 35–37% | Stop — wait for a lower-rate year |
The conversion process
How to execute a Roth conversion step by step.
Estimate your total taxable income for the year
Include all W-2 income, freelance income, investment income, capital gains, and any other taxable sources. This tells you how much of each bracket is already "used."
Start here — know exactly where you are in each bracketIdentify how much "room" is left in your target bracket
If your taxable income (after deductions) is $15,000, and you want to fill the 12% bracket ($48,475 ceiling), you have $33,475 of conversion space at 12%. Convert no more than that amount this year to stay within the bracket.
The conversion amount — don't cross into the next bracket unintentionallyRequest the conversion from your IRA custodian
Contact your brokerage (Fidelity, Vanguard, Schwab, etc.) and request a partial or full Roth conversion. Specify the dollar amount. The converted amount appears as ordinary income on your tax return for that year.
Execution — available at any time during the tax yearPay the tax from non-retirement funds — not from the converted amount
If you convert $30,000 and pay the tax from that $30,000, you're reducing the amount that grows tax-free in Roth. Pay the resulting tax bill from your taxable brokerage account or cash savings. This is critical to maximise the conversion's value.
Key detail — pay tax from outside the retirement accountMake quarterly estimated tax payments if no withholding
A large Roth conversion with no employer withholding creates a tax liability due in April. Avoid underpayment penalties by making quarterly estimated payments. Your custodian can withhold from the conversion, but see step 4 — preferably pay from outside funds.
Tax mechanics — avoid surprise penalties at filingConversion windows in practice
Five situations where this strategy is particularly valuable.
Early retirement (age 55–65) before Social Security and RMDs begin
This is the classic Roth conversion window. Income drops from peak earning to retirement portfolio withdrawals. No Social Security yet (which starts at 62–70). No Required Minimum Distributions yet (which start at 73). A 5–15 year window to convert at low rates before both sources of income arrive and push you into higher brackets.
Prime window — typically 5–15 years of low-bracket availabilityJob change or sabbatical with income gap
Even a partial-year income reduction creates bracket space. If you leave a $200,000 job in June and take 6 months off, your year's income might be $100,000 — converting $30,000 might land in the 22% bracket versus the 32–35% you'd face in a full earning year.
Good opportunity — partial-year income creates unused bracket spaceFirst year after leaving a high-paying job
Career transition, starting a business, or moving to part-time. Often the lowest-income year in a decade. Conversion during this transition can permanently lower your retirement tax burden.
Often ideal — income inflection points are conversion opportunitiesNear-retiree: watch IRMAA thresholds
If you're 63 or older, large conversions can trigger IRMAA surcharges on Medicare Part B and Part D premiums 2 years later. IRMAA is income-based and can add $1,000–5,000+/year to Medicare costs. Factor this in before converting large amounts above $103,000 (single) or $206,000 (married) in MAGI.
Be careful — IRMAA adds a hidden cost near Medicare eligibilityThe Roth conversion ladder
For early retirees: accessing converted funds before 59½.
Roth IRA contributions can be withdrawn at any time tax- and penalty-free. Converted funds have a 5-year holding period before they can be withdrawn penalty-free (though contributions are always accessible). This creates a planning tool for early retirees under 59½ who need income before traditional retirement account access.
Convert enough traditional IRA funds each year to cover living expenses 5 years from now. After 5 years, those converted funds become accessible penalty-free. By converting each year in your early retirement, you create a pipeline of accessible Roth funds on a rolling 5-year basis — using low-income years and low-rate conversions to fund early retirement without the 10% early withdrawal penalty that would apply to traditional IRA funds before 59½.
Direct contribution vs conversion
You can still contribute directly to a Roth IRA if your income allows it.
| Direct Roth IRA Contribution | Roth Conversion | |
|---|---|---|
| Annual limit (2025) | $7,000 ($8,000 if age 50+) | No limit — convert as much as you want |
| Income limit | Phases out at $150,000–165,000 (single); $236,000–246,000 (married) | None — anyone can convert regardless of income |
| Tax treatment | After-tax dollars in, tax-free growth and withdrawal | Pre-tax funds converted — taxable in conversion year, then tax-free |
| 5-year rule | 5 years from first contribution for earnings to be tax-free | 5 years from conversion year for penalty-free access to converted principal |
If your income exceeds the Roth IRA phase-out limit, you cannot contribute directly — but you can make a non-deductible traditional IRA contribution and immediately convert it to Roth (the "backdoor Roth"). Be aware of the pro-rata rule: if you have other pre-tax IRA funds, part of your conversion will be taxable. Consider rolling pre-tax IRA funds into an employer 401(k) to isolate the basis for a clean backdoor Roth.
How much should you convert — and at what rate?
Franky works through your income, existing account balances, tax bracket, and retirement timeline to give you a specific conversion amount recommendation for your situation.
Talk to Franky →