How Roth conversions work

A Roth conversion moves money from a pre-tax retirement account (a traditional IRA or 401(k)) into a Roth, paying ordinary income tax on the converted amount now so it grows and is withdrawn tax-free later in qualified retirement withdrawals. It is one of the few genuinely powerful levers a household controls - and one of the easiest to get wrong, because the cost shows up in places beyond the obvious income-tax bill.

Why a household considers it

The case for converting is strongest when your tax rate today is lower than the rate you expect to pay later - or the rate your heirs will pay. That situation is common in the "gap years" between retirement and the start of Required Minimum Distributions (RMDs), when earned income has stopped but RMDs have not yet forced large taxable withdrawals. Converting in those low-income years fills up the lower brackets deliberately, rather than letting a wall of RMDs push you into high brackets later.

The bracket-fill idea, with a number

Suppose in a gap year your taxable income leaves $40,000 of room before the next federal bracket begins. Converting roughly that $40,000 means the whole conversion is taxed at the lower bracket's rate. Convert $80,000 instead and the top half spills into the higher bracket. The discipline is to convert up to a bracket ceiling, not past it - "filling the bracket."

The rules that catch people

Three second-order effects are where conversions go wrong:

• The IRMAA two-year lookback. Medicare Part B and D premiums are surcharged based on your income from two years prior. A large conversion at 63 can raise your Medicare premiums at 65. The cost is real but delayed, so it is easy to forget.
• Conversion-year vs. withdrawal-year state tax. If your current state taxes the conversion, you pay that tax in the state you live in now (some states, such as Illinois and Pennsylvania, do not tax retirement-account conversions at all). If you plan to move to a lower- or no-tax state later, converting before the move can be an expensive mistake.
• The SECURE Act and inherited IRAs. Under the SECURE Act (for IRA-owner deaths after 2019), most non-spouse heirs must empty an inherited IRA within 10 years. A pre-tax IRA left to a high-earning child can land entirely in their peak-earning brackets - which often strengthens the case for converting during your own lower-bracket years.

How Ironlake treats it

Ironlake's Roth Conversion Modeler runs a single year or a multi-year ladder with deterministic, year-by-year scenario math, modeling the IRMAA two-year lookback, conversion-year vs. withdrawal-year state tax, and non-deductible basis. An inherited IRA is flagged as non-convertible under the SECURE Act 10-year rule rather than run through the conversion math. IRMAA tiers are kept as multi-year reference data so the lookback lands on the right year.

• Try a quick version: the Roth conversion calculator.
• Related: withdrawal sequencing.

Honest limits

Ironlake shows you the bracket math, the IRMAA exposure, and the multi-year trace so you can see the trade-off clearly; it does not tell you whether or how much to convert. A conversion model also rests on assumptions about future tax law, returns, and income - all uncertain - so the decision, checked with your tax preparer, is yours.

Model a conversion