Roth IRA Conversion: What It Is, When to Do It, and How It Affects Your Taxes

When you do a Roth IRA conversion, a process where you move money from a traditional IRA into a Roth IRA and pay income tax on the amount transferred. Also known as IRA conversion, it’s not a trick—it’s a strategic tax move that can save you thousands in retirement if timed right. Unlike traditional IRAs, where you defer taxes until withdrawal, Roth IRAs let you pay taxes upfront and then withdraw everything tax-free after age 59½, as long as the account is five years old. That means your gains, dividends, and interest grow completely free of future taxes—something you can’t get with a traditional IRA.

This move isn’t for everyone. If you’re still working and in a high tax bracket, converting could push you into an even higher bracket, costing you more in taxes now than you’d save later. But if you’re between jobs, retired early, or had a year with lower income, that’s when a Roth IRA conversion often makes the most sense. It’s also smart if you think tax rates will go up in the future. The IRS doesn’t let you undo a conversion anymore, so timing matters more than ever. You can convert part of your traditional IRA too—no need to move it all at once. Many people convert a little each year to avoid big tax bills.

One big thing people forget: you pay taxes on the entire amount you convert, including earnings and pre-tax contributions. If your traditional IRA has both deductible and non-deductible contributions, the IRS requires you to prorate the taxable portion across all your IRAs—not just the one you’re converting. That’s called the pro-rata rule, and it trips up a lot of people. Also, if you’re under 59½ and convert, you can’t touch the converted funds for five years without a penalty, even though the original money was yours. That five-year clock resets for every conversion you make.

There’s no limit on how much you can convert in a year, but the tax bill can be huge. That’s why some people spread conversions over several years. If you’re 65 and retired, with no other income besides Social Security, that’s a sweet spot to convert $20,000 or $30,000 without bumping into the 22% or 24% tax bracket. If you’re still earning $120,000 a year? Probably not the time.

And don’t forget about required minimum distributions (RMDs). Traditional IRAs force you to start taking money out at 73, and those withdrawals are taxable. Roth IRAs have no RMDs during your lifetime. So if you’re planning to leave money to your kids, a Roth IRA conversion gives them tax-free inheritance—something a traditional IRA can’t match.

There are tools out there to help you model this—some calculators even show how much you’d save over 20 years based on your current tax rate versus your projected rate in retirement. But you don’t need fancy software. Just ask yourself: Do I expect to be in the same tax bracket—or higher—when I pull money out? If yes, paying now makes sense. If you’re unsure, converting a small chunk each year is a low-risk way to test the waters.

Below, you’ll find real-world breakdowns of when conversions worked, when they backfired, and how people with different incomes and retirement goals used this tool to their advantage. No theory. No fluff. Just what actually happened—and what you can learn from it.