Should You Convert Your Traditional IRA or 401(k) to a Roth IRA?

Wondering whether a Roth IRA conversion makes sense for you? With federal tax brackets locked in at today’s lower rates, this is a moment many high-savers are taking a hard look at. If you have money in a traditional IRA or 401(k), should you convert it to a Roth IRA? Read on for a clear breakdown.

Roth vs. Traditional: A Quick Refresher

The common wisdom is simple. Use a Roth IRA or Roth 401(k) when you expect your tax bracket in retirement to be higher than it is today. NerdWallet has a strong primer if you want a side-by-side comparison.

By paying a smaller amount of tax now, you avoid a larger tax bill later. As a result, every dollar inside the Roth grows — and eventually comes out — completely tax-free.

Key differences at a glance

• Traditional IRA / 401(k) – Deduct contributions today, pay tax on every dollar you withdraw in retirement.
• Roth IRA / 401(k) – Pay tax today, then withdraw qualified amounts tax-free in retirement.
• Required Minimum Distributions (RMDs) – Traditional accounts force you to start withdrawing at age 73. Roth IRAs have no RMDs during the original owner’s lifetime — see the IRS RMD page for current rules.

Where Today’s Tax Rates Stand

The Tax Cuts and Jobs Act (TCJA) lowered most federal tax brackets starting in 2018. Originally, those rates were scheduled to sunset at the end of 2025. However, the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made the TCJA individual brackets permanent.

For 2025, the federal brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. For the latest figures, check the IRS federal income tax rates and brackets page.

However, “permanent” in tax law just means “until Congress changes it again.” As a result, locking in today’s rates through a Roth IRA conversion still has real appeal — especially if you expect a future Congress to raise rates or if your own income will climb in retirement.

Should You Do a Roth IRA Conversion?

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth account. You include the converted amount in your taxable income for the year and pay ordinary tax on it. After that, the money grows tax-free — and qualified withdrawals are tax-free too.

The ideal year to convert

The best year to convert is one where you’re in a lower tax bracket than you expect to be in later. For example:

• You shifted to part-time work and dropped from the 22% bracket into the 12% bracket
• You took a sabbatical or had a low-income year
• You retired but Social Security and pension income haven’t kicked in yet
• Your business had an unusually slow year — for example, a childcare owner between expansions

For example, suppose you’re $10,000 below the top of the 12% bracket. Convert $10,000 today and you’ll pay $1,200 in tax. However, if you wait and withdraw that same $10,000 later in the 22% bracket, you’d pay $2,200. As a result, you save $1,000 — and far more if rates rise.

What to watch out for

However, conversions aren’t always a slam dunk. Watch for:

• Bracket creep – A large conversion can push you into a higher bracket. Spread conversions over several years to stay efficient.
• Medicare IRMAA surcharges – Higher AGI can raise your Medicare premiums two years out.
• ACA premium tax credits – If you buy health coverage through the marketplace, a conversion can reduce or eliminate your subsidy.
• The pro-rata rule – If you have both pre-tax and after-tax money in traditional IRAs, conversions get taxed proportionally.
• Five-year rule – Each conversion has its own five-year clock before earnings can come out tax-free.

Run the Numbers Before You Convert

Finally, every Roth IRA conversion comes down to educated guesses — about your future income and about future tax rates. Vanguard’s Roth conversion guide includes a calculator that’s helpful for a first pass.

Meanwhile, the right strategy depends on your full financial picture — your other retirement accounts, your business income, and how you pay yourself as an owner. Solid bookkeeping makes the math much easier when conversion season rolls around.

For more, read our tax season tips and our guide on when to meet with your accountant.

Want help running the numbers on a Roth IRA conversion? Schedule a discovery call with the team at Honest Buck Accounting.