As the holidays get closer, many people start thinking about wrapping up more than just gifts. It’s also a time to wrap up the financial year — reviewing contributions, looking over spending, and making sure taxes are on track before January.
One item you might not have on your year-end checklist is a Roth conversion, which is when you move money from a traditional IRA to a Roth IRA. It’s a simple concept, but the timing can make a big difference in what you pay in taxes and what you keep for retirement.
So what is a Roth conversion? Why do so many people wait until the end of the year to do it? And when might it make sense to hold off?
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What Is a Roth Conversion?
A Roth conversion is when you move all or part of a traditional (pre-tax) IRA into a Roth IRA. When you do this, the amount you convert counts as taxable income for that year — you’re essentially paying the taxes for the account now so that your future withdrawals can be tax-free.
Once the money is in the Roth IRA, its earnings can grow tax-free. And as long as you follow the rules, qualified withdrawals in retirement are also tax-free.
💡 Tip: If you’re thinking about a conversion, it’s often best to pay the taxes from savings or other funds outside your IRA. That way, the full converted amount stays invested and working for you.
📌 Read our blog post - Traditional IRA vs. Roth IRA: What’s the Difference?
Why Are Roth Conversions So Popular at Year-End?
By late fall, you usually have a clearer idea of what your year-end income will be—including salary, bonuses, investment gains, and any big deductions. That makes it easier to estimate your tax bracket and how much you can convert without bumping yourself into a higher one.
This timing also lines up with other year-end tax planning moves, like charitable giving or reviewing your withholding. You (and your accountant) can see the whole picture before deciding how much to convert.
💡 Tip: A Roth conversion must be completed by December 31 to count for that tax year, but you don’t have to pay the taxes on the conversion until April’s tax filing deadline.
How Do 2025 Tax Brackets Affect Roth Conversions?
For 2025, here are a few key federal income tax thresholds that might guide your conversion decision (these are for 2025 and could change when some tax rules expire in 2026):
- Single filers: 12% up to $47,150, 22% up to $100,525, 24% up to $191,950
- Married filing jointly: 12% up to $94,300, 22% up to $201,050, 24% up to $383,900
If you’re near the top of your current bracket, converting too much could bump you into the next one. That’s why many people do partial conversions — spreading them out over several years instead of all at once.
❓ Is it better to convert all at once or over time?
In many cases, spreading conversions over several years can help keep your tax bill manageable and give you room to adjust if your income changes.
📌 Learn more about our investment Tax Planning services
When Should You Not Do a Roth Conversion?
Not everyone should rush to do a Roth conversion before December 31. You may want to wait if:
- You expect to be in a lower tax bracket next year.
- You rely on your IRA for income and can’t pay the taxes from another account.
- You’re close to qualifying for ACA health insurance subsidies or other tax credits that depend on income.
- You’re planning to leave your IRA to a charity (which wouldn’t owe taxes anyway).
❓ What happens if I convert too much?
You could accidentally trigger higher Medicare premiums, lose certain deductions, or owe more tax than expected. That’s why year-end planning is so valuable — you can run the numbers while there’s still time to adjust.
Should I Do a Roth Conversion During a Market Dip?
It sounds counterintuitive, but there can be reasons to consider a Roth conversion when the market is down.
If you convert when your account value is lower, you pay taxes on that smaller dollar amount. If the market later rebounds, that growth would occur inside your Roth IRA without additional taxes.
That said, markets don’t always recover right away, and there’s a chance values could fall even further after you convert. It’s important to weigh both the potential benefits and risks before making the move — and to make sure it fits within your broader financial plan.
📌 Read our blog post – Navigating Markets Through Uncertainty: What Investors Should Know
What Is the Five-Year Rule in Roth Conversions?
You need to wait at least five years after a Roth conversion before withdrawing the converted funds without taxes or penalties — unless you’re over 59½. Each conversion has its own five-year clock.
This rule is meant to keep Roth IRAs focused on long-term savings, not short-term tax moves.
What Is the Pro-Rata Rule?
If your traditional IRA includes both pre-tax and after-tax contributions, the IRS treats each conversion as a mix of both — meaning only part of it might be tax-free.
In other words, you can’t choose to convert just the “after-tax” money; the IRS spreads it evenly across all your IRA balances.
Should a Roth Conversion Be Part of Your Financial Plan?
Think of a Roth conversion as part of a larger, multi-year tax plan — not a one-time event. Converting strategically can help create tax-free income later, reduce future RMDs, and give you more flexibility when tax laws change. But it’s not the right move for everyone. Higher upfront taxes or changes in your income could offset some of the benefits, which is why timing and planning matter.
If you’d like to review whether a Roth conversion fits into your year-end financial planning, we’re here to help. Schedule a complimentary introductory meeting with our team in Glastonbury or Wilton, Connecticut, to talk through your options.
Jordan Hickey is a CERTIFIED FINANCIAL PLANNER® professional who helps clients create personalized financial plans. Based in Glastonbury and Wilton, CT, Jordan offers guidance on retirement, insurance, investments, and overall wealth management. Schedule a complimentary introductory meeting with Jordan.
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. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.