Roth conversions get a lot of enthusiastic press, and most of it is deserved. Moving money from a traditional IRA into a Roth can reshape your tax picture for decades and ease the required minimum distribution burden later in retirement.
But somewhere along the way, “conversions can be smart” curdled into “conversions are always smart,” and that’s where I start to worry.
A Roth conversion is a tool, not a virtue. There are specific situations where they’re the wrong move — and sometimes an expensive one. Knowing when to hold off is just as valuable as knowing when to act.
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Here are five times a Roth conversion usually doesn’t make sense.
1. You’re in a high-income year
The entire logic of a conversion rests on paying tax now, at today’s rate, to avoid tax later. That only works in your favor if today’s rate is lower than the rate you expect to face down the road.
Convert during a peak earning year, when your income is already pushing the top of a bracket, and you’re doing the opposite: Paying tax at one of the highest rates you’ll ever see.
If you’re still working and at the height of your career, or you had an unusually large income event this year, that’s generally the worst possible time to stack a conversion on top.
The better move is often to wait for a lower-income year, which for many people arrives after they stop working but before required minimum distributions begin at age 73.
2. You’d have to use the IRA itself to pay the tax
This one is a quiet deal-breaker that people miss. A conversion works far better when you can pay the resulting tax bill from outside funds in a taxable brokerage or savings account.
If the only way to cover the tax is to pull extra from the IRA you’re converting, you erode the whole benefit. You’re shrinking the amount that actually makes it into the Roth, and if you are under 59½, the portion withheld for taxes could itself trigger a penalty.
Picture converting $100,000 and needing roughly a quarter of it to pay the tax. If that quarter comes out of the IRA rather than a separate account, only three-quarters of the money reaches the Roth, and you’ve lost years of potential growth that qualified Roth withdrawals would have delivered tax-free.
When there’s no outside cash to pay the tax, a conversion frequently doesn’t make sense. The answer is to wait until you have the liquidity to do it right, or to convert a smaller amount you can actually afford to cover.
3. You expect your tax rate to fall in retirement
Not everyone faces higher taxes later. Plenty of people will drop into a lower bracket once the paychecks stop, especially if they don’t have enormous traditional balances generating large future RMDs.
If you genuinely expect your retirement tax rate to be lower than it is today, converting now means voluntarily paying a higher rate to avoid a lower one. That is backward. The conversion crowd sometimes assumes everyone’s taxes are headed up, but that is an assumption, not a fact, and it deserves to be tested against your actual projected income.
For some people, simply taking ordinary distributions in retirement at a modest rate beats prepaying tax today. The only way to know is to project your retirement income honestly, including Social Security and any pension, rather than assuming the worst about future rates.
4. The money will pass to heirs who get a step-up anyway
Estate considerations can flip the entire calculation. Consider someone late in life with a serious health situation, whose assets are likely to pass to heirs before long.
Traditional IRA dollars left to heirs are taxed as those heirs withdraw them, which is a real consideration. But other assets, like appreciated stock in a taxable account, generally receive a step-up in cost basis at death, which can wipe out the embedded capital gains for the heirs.
In a case like that, spending energy and tax dollars converting a traditional IRA may make less sense than simply leaving the accounts as they are and letting the estate planning rules do the work.
This is exactly the kind of situation where a reflexive “always convert” instinct can cost a family money rather than save it. It is worth coordinating with an estate planning attorney before acting.
5. State taxes erase the federal benefit
Federal brackets get all the attention, but your state often wants a cut of a conversion, too. If you live in a high-tax state today and realistically plan to retire somewhere with low or no income tax, converting now can mean paying state tax you could have sidestepped entirely by simply waiting until after you move.
The federal math might look fine in isolation, but once you layer your current state’s tax on top of the conversion, the case can fall apart.
The decision and your geography are tied together, and analyzing the conversion without your specific state in the picture can lead you somewhere you wouldn’t choose if you saw the full bill.
The pattern worth noticing
Look at these five situations and a theme emerges. A Roth conversion isn’t good or bad on its own. It’s good or bad relative to your specific circumstances:
- Your current bracket vs your expected future bracket
- Whether you have outside cash to pay the tax
- Your estate plans
- Your state
Strip away those specifics and “always convert” is just a slogan. What makes the slogan dangerous is that it sounds responsible. It carries the glow of disciplined, forward-thinking planning, which is exactly why people follow it without checking whether it fits their own numbers.
I’m not arguing against conversions. Used in the right years, with the tax paid from the right place, they remain one of the more useful planning tools available to people heading into retirement.
I am arguing against treating them as automatic. The same move that helps one person in a low-income gap year can hurt another who is at peak earnings, short on outside cash or about to relocate to a no-tax state.
Before you convert, the honest question isn’t “Should everyone do this?” It’s “Does this make sense for me, this year, given everything else?”
Sometimes the answer is an enthusiastic yes. Sometimes the most valuable thing a conversion analysis produces is the decision to wait.
Both are wins, and knowing the difference is what separates a real strategy from a popular one.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for five years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.