Should You Be Making Roth IRA Contributions or Conversions?
Should I Convert to a Roth IRA?
Sounds like a simple yes or no question, doesn’t it? If only that were true.
The wonderful thing about Roth IRA accounts is they grow and compound into income tax-free dollars.
The problem is you must pay taxes on the funds before they can be contributed to a Roth IRA account. That means money you contribute directly to a Roth IRA or a Roth 401(k) account does not provide a tax deduction in the year the contribution is made, and tax-deferred IRA assets you convert to a Roth IRA are taxable in the year of the conversion.
Calculating whether you end up with more tax-free money to spend later versus the money you save on income taxes today is more complex than a simple yes or no.
There are, however, some important points you should understand when choosing whether a Roth IRA conversion or Roth IRA contribution makes sense for you.
your current & future marginal income tax rate
Not to be confused with your effective income tax rate, your marginal income tax rate is how much your last dollar of income is taxed. Current US income tax rates (2026) are 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
If your future expected marginal income tax rate is lower than your current marginal income tax rate, then you should be wary of making conversions to a Roth IRA — it might be a better option to wait until your marginal income tax rate is lower to begin making conversions or taking taxable withdrawals.
This might be someone in their peak earning years who will pay a lower rate once they retire. Here, it would make sense to get the current income tax benefit of a deductible Traditional IRA or 401(k) contribution and revisit the conversion decision once you reach retirement.
Conversely, if your current marginal income tax rate is lower than what your future marginal income tax rate will be, Roth IRA contributions and Roth IRA conversions could make sense.
Maybe you’re a recent retiree with large tax-deferred IRA assets and additional pension income that can be supplemented with after-tax savings. Your current marginal tax rate could be very low, but in the future, you will be forced to supplement your income with tax-deferred assets. To lower the total lifetime taxes you must pay, executing Roth IRA conversions now might be the answer. It will provide a tax-free source of income later which gives you the opportunity to manage your marginal income tax brackets in the future.
YOUR AGE
Compound interest has been called the eighth wonder of the world. It is amazing how the last few years of long-term savings exponentially increase the dollar value of an account. A Roth IRA funded with just $7,500 today and compounding at 8% projects to reach a value of over $50,000 in 25 years — and over $75,000 in 30 years.
The younger you are, the more attractive Roth IRA and Roth 401(k) contributions and Roth IRA conversions become. If you have a 30-year time horizon it is hard to say no to multiplying your money tenfold, income tax-free in retirement.
Do You Receive Social Security Benefits?
Okay, you waited until you retired, and your income tax bracket has dropped. You still might not get an all clear on Roth IRA conversions. The amount of your Social Security benefits subject to income taxes varies with your other sources of income. Currently, (and for a long time now, because these amounts are not adjusted for inflation) 50% of your Social Security benefits are included in taxable income for joint filers with combined income between $32,000 and $44,000. Any combined income greater than $44,000 subjects 85% of your Social Security benefits to taxation. For single filers the 50% limit on combined income is $25,000 to $34,000 and then jumps to 85% above $34,000.
Because of these cliff limits, Social Security recipients could find themselves in the odd position of having a higher effective rate than marginal rate if they choose to convert money into Roth IRAs. This seldom makes good economic sense.
qualifying for affordable care act (aca) premium tax credits (ptcs)
For retirees who are too young to qualify for Medicare and lack health insurance coverage from their former employer, managing your income to qualify for ACA health insurance subsidies is very important.
We have worked with a number of newly retired clients to fund their early retirement years with after-tax savings and pension income, allowing them to receive substantial subsidies for their health insurance premiums called Premium Tax Credits (PTCs). Sometimes it’s necessary to convert some tax-deferred IRA funds into Roth IRA accounts to have enough taxable income to qualify for PTCs, yet not so much that they miss out on this valuable subsidy. On the other hand, Roth IRA conversions could be detrimental to receiving PTCs. Plan carefully here — PTCs can be worth thousands of dollars each year.
controlling required minimum distributions (rmds)
Large tax-deferred IRA balances (Rollover, SEP, SIMPLE, Traditional, etc.) can wreck your income tax plan. By projecting the required minimum distribution (RMD) requirements you could find that although you have retired and are in a manageable marginal income tax bracket today, the RMD rules could force you into much higher marginal tax brackets in the future. Your goal in managing taxes shouldn’t be to pay the lowest amount of taxes possible today — but pay the lowest total dollars in income taxes over your lifetime.
By making strategic Roth IRA conversions early in retirement, you might be able to keep more of your IRA dollars tomorrow. Maybe you can maximize the 24% marginal rate now even if you could be in the 12% bracket, rather than paying taxes on your RMDs at 32% in the future.
DON’T FORGET IRMAA MEDICARE PREMIUM SURCHARGES
Many taxpayers are surprised to find out that the higher their income in the last year, the higher their Medicare Part B and D premiums are.
For those who receive Part B and Part D Medicare benefits, there are tiers related to your income that determine your monthly Medicare premiums. Medicare uses the Modified Adjusted Gross Income (MAGI) reported on your 1040 from the previous year to set your premiums for the following year.
For 2026, single filers with MAGI of $109,000 or less and joint filers with MAGI of $218,000 or less in 2024 pay the standard Medicare premium of $202.90 per month. If you exceeded those income levels in 2024 your monthly premium will be higher. You need to incorporate any anticipated Medicare premium increases into your calculations to determine any net savings you might expect from utilizing a Roth IRA conversion strategy.
consider your heirs
Sadly, the SECURE Acts 1.0 & 2.0 make inheriting tax-deferred IRA accounts fraught with problems. If leaving money to your heirs is a priority for you, converting tax-deferred IRA funds to Roth IRA funds might make sense. Your heirs will very likely inherit any IRA funds during their peak earnings years and will have to withdraw the funds over a 10-year period beginning in the year following your year of death. The net amount they receive will probably be greatly reduced by the income tax liability that comes with inheriting tax-deferred IRA funds.
For information on steps you can take to minimize the income tax leakage see our post “Solutions to the SECURE Act Stretch IRA Problem”. If leaving money to your heirs is important to you, that will make Roth IRA conversions more attractive to you.
bottom line
In the end, choosing whether to contribute to a Roth IRA or a tax-deferred IRA and choosing when and how much to convert to a Roth IRA is a complicated decision. But the income tax savings can be significant. To be sure you are making good choices, you should seek out competent financial professionals.
Should You Convert to a Roth IRA?
A Roth IRA conversion makes sense when your current marginal tax rate is lower than the rate you expect to pay later. For example, in early retirement before Social Security and RMDs begin. It usually doesn’t make sense if you’re in your peak-earning years and expect to be in a lower tax bracket after you retire. The right answer depends on your tax bracket, age, Social Security timing, Medicare premiums, and estate goals.
What determines whether a Roth IRA conversion makes sense?
Roth IRA accounts grow and compound completely income-tax-free. The tradeoff: you pay tax on the money before it goes in. A direct Roth contribution gets no deduction, and converting tax-deferred IRA dollars to a Roth is taxable in the year you convert.
Whether that trade pays off depends on several factors covered below: your current vs. future tax bracket, your age, Social Security, ACA subsidy eligibility, RMDs, Medicare IRMAA surcharges, and what you want to leave your heirs.
Does my current vs. future tax bracket matter for a Roth conversion?
Yes, this is the single biggest factor. Your marginal rate (the tax on your last dollar earned) is what matters here, not your effective rate. 2026 federal brackets run 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- If your future marginal rate is likely to be lower than today’s (common during peak earning years) it usually makes more sense to take the deduction now through a traditional IRA or 401(k) contribution and revisit converting once you’re retired and your bracket drops.
- If your future marginal rate will likely be higher than today’s (common for a recent retiree living on pension income before RMDs and Social Security kick in), converting now, while your bracket is temporarily low, can reduce your lifetime tax bill.
Does my age affect whether I should convert to a Roth IRA?
Significantly. Compound growth rewards time in the account. $7,500 converted today at an 8% return would amount to roughly $50,000 in 25 years and $75,000 in 30 years, all of it tax-free upon withdrawal. The younger you are, the stronger the case for Roth contributions, Roth 401(k) contributions, and conversions.
How does a Roth conversion affect Social Security taxation?
Even after retirement drops you into a lower bracket, Social Security can complicate the math. For joint filers, 50% of Social Security benefits are taxable once combined income reaches $32,000–$44,000, and 85% is taxable above $44,000. For single filers, the thresholds are $25,000–$34,000 and $34,000+.
Because these thresholds aren’t adjusted for inflation, a Roth conversion can push you past a “cliff,” resulting in an effective tax rate higher than your marginal rate. That usually makes conversions in these income ranges a poor trade.
Can a Roth conversion affect my ACA health insurance subsidy?
Yes, in both directions. If you’ve retired before becoming eligible for Medicare and are relying on ACA coverage, your income determines your Premium Tax Credit (PTC), often worth thousands of dollars a year. Some early retirees convert a modest amount of tax-deferred IRA money to Roth specifically to reach the income floor needed to qualify for PTCs. Converting too much, however, can push income high enough to lose the subsidy entirely. This requires careful, year-by-year planning.
Will converting to a Roth IRA reduce my future Required Minimum Distributions (RMDs)?
It can, and this is where a lot of retirees leave money on the table. Large tax-deferred balances (Rollover, SEP, SIMPLE, Traditional IRAs) generate RMDs that can push you into a much higher bracket later, even if you’re in a comfortable bracket the year you retire. The goal isn’t to minimize this year’s tax bill; it’s to minimize total taxes paid over your lifetime.
Converting strategically in early retirement, such as filling the 24% bracket now rather than paying 32% on forced RMDs later, is a common way to lower the lifetime total.
Does a Roth conversion trigger higher Medicare premiums (IRMAA)?
It can. Medicare Part B and Part D premiums are tied to your Modified Adjusted Gross Income (MAGI) from two years prior, so your 2026 premium is based on your 2024 MAGI. For 2026, single filers with 2024 MAGI at or below $109,000 and joint filers at or below $218,000 pay the standard $202.90/month premium. Above those thresholds, premiums step up in tiers set by Medicare. A conversion large enough to cross a tier can add meaningfully to your Medicare costs the following year; that cost needs to be netted against the tax savings.
Should I convert to a Roth IRA to leave more money to my heirs?
Possibly. Under the SECURE Act 1.0 and 2.0, most non-spouse heirs must fully withdraw an inherited tax-deferred IRA within 10 years, often during their own peak earning years, when the tax hit is largest. Converting to a Roth now means your heirs inherit tax-free money instead. See our related post, Solutions to the SECURE Act Stretch IRA Problem, for strategies to further reduce tax leakage. If leaving a larger, tax-free inheritance is a priority, this tips the scales toward converting.
So, is a Roth IRA conversion right for you? (Bottom line)
Deciding whether, and how much, to convert touches your tax bracket today and in retirement, your age, Social Security, ACA subsidies, RMDs, Medicare premiums, and your estate plan. Get any one of these wrong and a conversion can cost you money instead of saving it. Schedule a call with a fee-only financial planner to run the numbers for your specific situation.
The Financial Planners at Oak Street Advisors Can Help — Two Locations in South Carolina
Frequently Asked Questions About Roth IRA Conversions
Two Locations, One Commitment: Your Financial Future
At Oak Street Advisors, we believe clarity and confidence in your financial future should be accessible no matter where you live. With offices in Myrtle Beach and Mt. Pleasant, our team of fee-only fiduciary advisors is here to provide personalized financial planning, investment management, and tax strategies designed to help you achieve lasting success.
Book a consultation today to connect with us and take the first step toward financial peace of mind.
Meet Ryan Cooper in Myrtle Beach
“Coop” has been with Oak Street Advisors since 2021 helping clients in the Myrtle Beach office build holistic financial plans that aim to minimize their lifetime tax burden while optimizing the long-term growth of their investments. Coop has trained under Joe Taylor, the founder and previous owner of the firm, and Bryan Taylor, CFP®, the current owner, to provide Oak Street’s high standard of planning and investment management services for our clients.
Charleston
Bryan works together with the team on all financial plans and strategies. By collaborating they provide objective fiduciary financial planning and asset management to their clients within a fee-only business model which reflects their passion for putting clients’ interests above the next dollar. Regardless of the engagement, they know that if they take care of the client first, they will then reap the rewards through both their clients’ and the firm’s success.
