The best time to convert depends on your income this year and your tax bracket in retirement

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth account. You pay income tax on the amount you convert in that tax year, but the money then grows tax-free and you owe no tax when you withdraw it later. The timing question is really about taxes: you want to convert when your tax bill for doing so is lowest, and when the tax-free growth afterward will benefit you most.

The practical answer is that most people convert during a year when their income is unusually low — a job loss, retirement before Social Security starts, a sabbatical, or a gap between jobs. Some convert in small amounts every year. A few convert large amounts in a single year if they expect to be in a much higher tax bracket later. The worst time to convert is when you are in your peak earning years, because you will pay the highest tax rate on the conversion.

Key Takeaways

  • Convert when your income is lower than usual — a job loss, early retirement, or gap between jobs — because you will owe less tax on the conversion.
  • If you are still working and earning a high salary, converting usually costs you more in taxes than waiting until you retire.
  • Converting before age 59½ means you can access the converted money without penalty after five years, but the original contribution rules still apply to earnings.
  • A conversion in a low-income year can reduce the tax you owe on Social Security benefits and lower your Medicare premiums in future years.
  • The five-year rule for conversions is separate from the five-year rule for contributions — each conversion starts its own five-year clock.

Converting during a year when your income drops

The most common reason to convert is that your income for the year is lower than it normally is. This might happen if you leave a job mid-year, take unpaid leave, retire before you start drawing Social Security, or have a business downturn. In that year, your tax bracket is lower, so the tax you owe on the conversion is smaller.

For example, if you normally earn $120,000 a year and are in the 22% federal tax bracket, converting $50,000 would cost you roughly $11,000 in federal tax. But if you lose your job in March and have no other income for the rest of the year, that same $50,000 conversion might cost only $6,000 in federal tax, because it fills up the lower brackets first. The difference is real money that stays in your Roth account instead of going to the IRS.

This window is often temporary. If you know you will return to work at a higher salary in January, the year you are between jobs is the time to convert. Once you are back at full income, the tax cost rises again.

Converting in early retirement before Social Security begins

Many people retire in their early 60s but do not claim Social Security until 67 or 70. During those years, their income is often very low — only investment returns, part-time work, or pension income. This is a natural window for conversions, because your tax bracket is depressed and you have time before you must take required withdrawals from traditional IRAs.

A secondary benefit appears after age 62, when you start claiming Social Security. The amount of Social Security that is taxable depends partly on your other income. A large conversion in a low-income year before you claim Social Security will not push up your Social Security tax bill the way it would if you converted after claiming. Once you are receiving Social Security, a conversion can trigger taxation of your benefits, which narrows the advantage.

This timing also matters for Medicare premiums. Your Medicare premium in a given year is based on your income from two years prior. A large conversion in year one of retirement can raise your premiums in year three. Planning conversions across multiple years, or timing them before you claim Social Security, can reduce this effect.

Converting in small amounts every year

Some people convert a fixed amount — say, $10,000 or $25,000 — every single year, regardless of income. This approach spreads the tax bill across many years and keeps you in a lower bracket each year. It also means you are not betting on a future low-income year that may never arrive.

This strategy works best if you have a long time horizon and expect your tax bracket to rise significantly by retirement. A 45-year-old with 20 years until retirement can convert small amounts annually and let the money compound tax-free for two decades. By the time they retire, a large portion of their retirement savings is already in a Roth and generating no tax.

The downside is that you are paying tax every year instead of waiting for a year when your income is very low. If a low-income year does arrive — a job loss, for instance — you might wish you had saved your conversion room for that year instead of using it up gradually.

Avoiding conversion in your peak earning years

If you are working full-time and earning your highest salary, a conversion is usually expensive. Your income is high, your tax bracket is high, and the tax you owe on the conversion is substantial. Unless you have a specific reason to believe your tax bracket will be even higher in retirement — which is rare — converting now costs more than converting later.

The exception is if you know you will face a large one-time expense that will lower your income in a specific future year. For instance, if you plan to take a sabbatical in two years, you might wait and convert during that sabbatical year instead of converting now. But if you are simply in a high-earning phase with no planned change, the math usually favors waiting.

The five-year rule and early access to converted money

If you convert before age 59½, you can withdraw the amount you converted (not the earnings on it) after five years without owing a 10% early withdrawal penalty. This five-year period starts fresh with each conversion. So if you convert $20,000 in 2024 and another $20,000 in 2025, the first $20,000 is accessible penalty-free starting in 2029, and the second $20,000 is accessible penalty-free starting in 2030.

This matters if you are retiring early and need access to cash. A conversion in your early 50s can give you a pool of money you can tap at 55 or 56 without penalty, bridging the gap until you can withdraw from your traditional IRA at 59½. But the five-year rule applies to each conversion separately, so timing matters if you need the money soon.

The earnings on the converted money are still subject to the 10% penalty if you withdraw them before 59½, regardless of how long ago you converted. Only the contribution amount itself gets the five-year pass.

Converting when you expect a higher tax bracket in retirement

This scenario is less common but real. If you expect your retirement income to be very high — perhaps from a large pension, substantial investment income, or a deferred compensation payout — you might be in a higher tax bracket in retirement than you are now. In that case, converting now at a lower rate and paying tax today saves you from paying a higher rate later.

This requires honest forecasting. Many people overestimate their retirement income. But if you have a pension that will pay $80,000 a year, plus Social Security, plus required IRA withdrawals, and you are currently earning $70,000, you may indeed face a higher bracket later. Converting now locks in today's lower rate.

Frequently Asked Questions

Is there a deadline for doing a Roth conversion?

No firm deadline exists, but the tax year matters. A conversion must be completed by December 31 of the year you want to claim it on your tax return. You cannot convert in January and claim it on the prior year's return. If you are considering a conversion, do it before year-end to control which tax year it lands in.

What if I convert and then the market drops — can I undo it?

Yes, through a process called a recharacterization, but only within certain time limits and with IRS rules. You must undo it by the tax filing deadline (usually April 15 of the following year). If the market drops after you convert, a recharacterization lets you reverse the conversion and avoid paying tax on money that is now worth less. Consult a tax professional before attempting this.

Does a conversion affect my ability to claim the Roth contribution limits?

No. Conversions and contributions are separate. You can contribute $7,000 to a Roth in 2024 (if you meet income limits) and also convert $50,000 from a traditional IRA in the same year. The conversion does not reduce your contribution room. However, high income can prevent you from contributing directly to a Roth, even if you can convert.

Should I convert if I have a traditional IRA and a 401(k)?

You can convert from either, but the pro-rata rule complicates things if you have both. If you have a traditional IRA with pre-tax money and convert from your 401(k), the IRS treats the conversion as if you converted a portion of all your pre-tax retirement accounts. This can increase your tax bill. Consult a tax professional if you have both account types.

Can I convert after I start taking required withdrawals?

Yes. Required withdrawals begin at age 73 (as of 2023). You can still convert in those years, but the conversion is separate from the required withdrawal. You must take the required withdrawal, and you can also convert additional money. Both are taxable in the year they occur.