A Roth conversion can be a powerful retirement-planning tool, but it often comes with an immediate tax bill. That's because when you move money from a traditional IRA or other pre-tax retirement account into a Roth IRA, the pre-tax amount you convert counts as taxable income for that year. You're paying taxes on that money now rather than when you withdraw it in retirement.
The catch is that the impact isn't always limited to the taxes you pay on the conversion itself.
A Roth conversion might push you into a higher tax bracket, make more of your Social Security benefits taxable, or raise future Medicare premiums. If you live in Connecticut, you also need to consider the affect on your state income taxes.
Before deciding whether to convert or how much, it helps to understand how these costs could add up.
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Why Is a Roth Conversion Taxable?
Money in a traditional IRA is usually tax-deferred, which means you haven't paid income tax on it yet. When you move those pre-tax funds to a Roth IRA, the amount you convert is generally counted as income for that year.
That's why a Roth conversion usually creates a tax bill, even though the money remains in a retirement account.
When Do You Pay Taxes on a Roth Conversion?
A Roth conversion is taxable in the year it occurs. If you complete a conversion in December, it still counts for that tax year, even if you file the tax return the following year.
If you're considering a year-end conversion, be sure to allow enough time for your custodian to process the transaction before December 31.
š For more on year-end timing, read: Should You Do a Roth Conversion Before the End of the Year?
Can a Roth Conversion Put You in a Higher Tax Bracket?
Potentially. Because a Roth conversion counts as income for the year, it could push some of that income into a higher federal tax bracket.
That doesn't mean all of your income is taxed at the higher rate. Federal tax rates are progressive, so different portions of your income may be taxed at different rates.
Whether a Roth conversion changes your tax bracket depends on how much you convert, your filing status, and your other income for the year. Even if you stay in the same bracket, adding conversion income will generally increase the taxes you owe.
Can a Roth Conversion Make More of Your Social Security Taxable?
Potentially. For federal tax purposes, how much of your Social Security benefits are taxable depends in part on your income. Because a Roth conversion can increase your income, it may cause a larger portion of your benefits to become taxable.
For some retirees, this means paying tax on both the conversion and a larger portion of their Social Security benefits.
Even if your income is higher, not all of your Social Security benefits are taxable. At most, 85% of your benefits can be taxed as income.
Could a Roth Conversion Increase Your Medicare Premiums?
Potentially. A Roth conversion can increase your income, which may affect what you pay for Medicare Part B and Part D.
Some higher-income Medicare beneficiaries pay an additional charge on top of their standard Medicare premiums called an Income-Related Monthly Adjustment Amount (IRMAA). Social Security uses modified adjusted gross income (MAGI) from two years earlier when deciding whether these surcharges apply.
For example, doing a Roth conversion in 2026 could affect your Medicare premiums in 2028.
This cost is separate from your income tax bill. Even if a conversion doesn’t move you into a higher tax bracket, it could still raise your Medicare premiums if your income goes over an IRMAA threshold.
š Read: How Does Your Income Affect Medicare Premiums?
How Can a Roth Conversion Affect Connecticut Income Taxes?
Connecticut provides income-based tax exclusions for certain retirement income, including IRA distributions, pension income, and Social Security benefits. Depending on your income and filing status, a Roth conversion could reduce or even eliminate some of those tax exclusions for that year.
So for Connecticut residents, there may be more to consider than just the federal tax consequences. The additional income may also affect your eligibility for certain Connecticut retirement-income exclusions.
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When Does a Roth Conversion Make Sense?
Even though a Roth conversion can increase your taxes, there are situations where the potential benefits may outweigh the upfront cost.
Qualified Roth IRA withdrawals are tax-free. For retirees who expect to rely on their savings over many years, that can provide more flexibility when managing future taxable income.
Roth IRAs are also not subject to required minimum distributions during the original owner's lifetime. For people who do not need the money right away, this can give them more control over when they withdraw their retirement savings.
Timing can matter, too. Some people explore Roth conversions during years when income is temporarily lower, such as after retirement but before Social Security benefits or required minimum distributions begin. Others spread conversions across several years to avoid adding a large amount of taxable income in a single year.
The potential benefits need to be weighed against the tax cost today. Future tax rates, retirement income needs, and how long the assets remain invested can all influence the outcome.
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Should You Do a Roth Conversion?
A Roth conversion can create opportunities for future tax-free income, but you need to weigh those potential benefits against the taxes you'll pay today. Whether a Roth conversion makes sense for you depends on factors such as your income, tax situation, retirement goals, and when you expect to use the money.
If you're considering a Roth conversion and want help understanding the tax impact and trade-offs, we're here to help. You can schedule a complimentary introductory meeting with our team in Glastonbury or Wilton, Connecticut, to discuss how a conversion might fit into your retirement plan. We can also work with you and your tax professional to review your options.
Have a quick question instead? Send us a note.
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Michael Nicoletti is a CERTIFIED FINANCIAL PLANNER® professional and works with clients throughout Connecticut and nationwide, offering financial planning and wealth management services. Based in Glastonbury and Wilton, CT, Michael helps families and individuals plan for their financial, insurance, investment, and retirement goals. Schedule a complimentary introductory meeting with Michael.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. It is not a statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of the author, not necessarily those of Raymond James, and are subject to change without notice.
RMDs are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Contributions to a traditional IRA may be tax-deductible depending on income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59½, may be subject to a 10% federal tax penalty.
Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59½, may be subject to a 10% federal tax penalty.
Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.
Changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.