Should I convert my IRA to a Roth? Pros, cons and who it helps

Mostly one thing: your tax rate on the money now compared with your rate when it would come out later. Growth matters less than you might think, because both of your accounts grow at the same rate.

The table shows $100,000 that doubles before you spend it. The tax is paid out of the converted money, to keep the comparison fair.

These are the situations where converting tends to help you most.

• Smaller RMDs later: your RMDs start at 73 (75 if you were born 1960 or later). A $1,000,000 IRA must pay out about $37,736 in the first year at 73. That can push you into a higher bracket. See Lowering tax on your RMDs.
• Protection for your surviving spouse: a widow or widower usually files single, with about half the bracket room of a couple.
• Tax-free money for your heirs: most adult children must empty an inherited IRA within 10 years, often while still working. See Roth conversions for heirs.
• Lower income for you later: qualified Roth withdrawals don't count toward Medicare IRMAA surcharges or the tax on your Social Security.
• Paying the tax from your savings: your Roth then holds the full amount, a small extra edge the table above leaves out.
• No required withdrawals for you, so your money can be left to grow.

These are real costs to you. A fair decision weighs them.

• You pay tax now, with money you could otherwise keep invested.
• You can't undo it. If the market falls after you convert, you still owe tax on the full amount.
• It can raise your Medicare Part B and Part D premiums two years later, through IRMAA surcharges.
• It can make more of your Social Security taxable this year, and shrink the $6,000 senior deduction if you're 65 or older.
• If you plan to leave your IRA to charity, the charity pays no tax on it. So converting may only add tax. Qualified charitable distributions from age 70½ may fit you better.
• If you're under 65 and buy marketplace health insurance, higher income can reduce your premium tax credit.
• If you'll move to a state with no income tax soon, waiting may save state tax.

These are general patterns, not rules. Your own numbers decide what's right for you.

It can be. Your age matters less than you might assume. The result depends on the tax rate comparison, not on how many years your money grows. Say you are 75 and convert at 12% to spare your spouse or children a 22% or 24% rate. You can come out ahead.

Two things change after your RMDs start. You must take the year's RMD first, and you can't convert it. And your RMD itself uses up some of your low bracket room, so you have less space to convert cheaply.

Start with your bracket this year. Then make a fair guess at your bracket later, including after your RMDs start and after your spouse's death. Then add the side effects: your Medicare premiums, Social Security taxation and the senior deduction.

Our Roth conversion tax calculator shows you the cost of a conversion this year. You may want a projection that includes your RMDs, Social Security and Medicare. If so, you can request a free personalized estimate at free Roth conversion estimate. A licensed professional prepares it.