Roth Conversion Calculator
Compare the long-term benefit of converting traditional IRA funds to a Roth IRA versus keeping them in a traditional account.
Understanding Roth Conversions
A Roth conversion is a strategic move that involves transferring money from a traditional IRA (pre-tax) to a Roth IRA (post-tax). You pay income taxes on the converted amount today, but the money then grows tax-free and can be withdrawn tax-free in retirement. The key question is whether paying taxes now will save you more than paying taxes later.
How This Calculator Works
This calculator projects the future value of your conversion amount in both scenarios. In the Roth scenario, you pay taxes now and the remaining balance grows tax-free. In the traditional scenario, the full amount grows tax-deferred but you pay taxes on withdrawals at your retirement tax rate. The net benefit shows which approach leaves you with more after-tax money.
The Roth Conversion Ladder Strategy
Rather than converting a large sum all at once (which could push you into a higher tax bracket), many people convert smaller amounts each year. This "Roth conversion ladder" lets you fill up lower tax brackets without triggering higher rates. Early retirees often use this strategy during the gap years between retiring and starting Social Security or RMDs.
Important Considerations
Pay the conversion taxes from non-retirement funds if possible — using IRA money to pay taxes reduces the benefit significantly. Consider state taxes in addition to federal. Remember that Roth IRAs have no required minimum distributions, providing more flexibility in retirement and better estate planning options for your heirs.
Frequently Asked Questions
What is a Roth conversion?
A Roth conversion involves moving money from a traditional IRA or 401(k) into a Roth IRA. You pay income taxes on the converted amount now, but all future growth and qualified withdrawals are completely tax-free. This can be advantageous if you expect to be in a higher tax bracket in retirement.
When does a Roth conversion make sense?
Roth conversions are most beneficial when your current tax rate is lower than your expected retirement tax rate, when you have a long time horizon for tax-free growth, when you want to reduce required minimum distributions (RMDs) later, or during low-income years when you're in a lower tax bracket.
Can I convert just part of my IRA?
Yes, you can convert any amount you choose — it doesn't have to be all or nothing. Partial conversions let you control your tax liability each year. Many people spread conversions over several years to stay within lower tax brackets, a strategy called a 'Roth conversion ladder.'
Is there an income limit for Roth conversions?
No. Unlike direct Roth IRA contributions, which have income limits ($161,000 for single filers in 2024), there is no income limit for Roth conversions. This is why the 'backdoor Roth' strategy — contributing to a traditional IRA then converting — is popular among high earners.