With rising economic uncertainty and market volatility, many investors are looking for ways to safeguard their long-term wealth. As retirement plans feel the pressure, it’s more important than ever to consider smart strategies for future financial security. With tax season upon us, timing is crucial in optimizing retirement savings.
One strategy that’s gaining attention is the Roth IRA conversion. While high earners often can’t contribute directly to a Roth IRA, converting pre-tax retirement funds into a Roth IRA can provide powerful, tax-free growth throughout retirement. But what is the key to making the most of this opportunity? Timing your conversion right. In this post, we’ll break down a Roth conversion and how to identify the ideal time to take advantage of this strategy for maximum benefit.
A Roth IRA conversion lets you move money from a pre-tax retirement account, like a traditional IRA, 401(k), or 403(b), into a Roth IRA. You’ll pay taxes on the converted amount now, but the growth and withdrawals are tax-free from then on.
This move is popular among those with large pre-tax balances who want to reduce future tax burdens or leave behind tax-free assets for heirs.
Before moving forward with a conversion, here are a few key factors to understand:
State tax treatment can vary. For example, Illinois doesn’t tax IRA distributions or Roth conversions, while Missouri and the federal government do. Always consult a tax professional to understand the full impact of tax on your state.
| Income Limits in 2026 | ||
|---|---|---|
| Single or married filing separately | $153,000–$167,999 | Reduced contribution allowed |
| $168,000+ | Not eligible to contribute | |
| Married filing jointly or qualifying widow(er) | $242,000–$251,999 | Reduced contribution allowed |
| $252,000+ | Not eligible to contribute | |
A Roth contribution is money you deposit directly into a Roth IRA with earned income, while a Roth conversion is when you move money from a pre-tax retirement account (like a traditional IRA) into a Roth IRA and pay taxes on it now.
Will you make the most out of your Social Security Benefits? Try Our Social Security Break-even Calculator.
If you’re a business owner, leveraging a down year in your business to convert funds to a Roth IRA can offer significant tax savings.
You’ve considered market timing, tax bracket, and Social Security strategy. But there’s one more rule that could impact your Roth IRA withdrawal timeline, and it often catches investors off guard: the five-year rule.
Depending on whether you are making a Roth IRA contribution or a Roth IRA conversion, there are different five-year clocks to consider:
Withdrawals of your original contributions are always tax and penalty-free.
A Roth IRA Contribution is the money you deposit into a Roth IRA.
The Rule: You must wait five years from January 1 of the year you make your first contribution to any Roth IRA before withdrawing earnings tax and penalty-free. This applies regardless of your age.
On the Plus Side: Once you have satisfied this rule for your first Roth IRA, it applies to all Roth IRAs opened afterward.
Multiple conversions, multiple five-year clocks.
A Roth IRA conversion involves moving funds from a pre-tax account, like a traditional Roth or 401(k), to a Roth IRA.
For every Roth conversion you make, a separate five-year clock starts. If you withdraw the converted funds before five years have passed, you could face a 10% early withdrawal penalty, even if you’re older than 59½.
Once each five-year period is up, those funds can be withdrawn tax-free.
To learn more about Roth Conversion Planning, visit our Retirement Decision Dashboard.
Roth IRAs offer outstanding flexibility and tax advantages for those approaching retirement. Understanding how and when to leverage a Roth conversion can pay off for years to come.
Be Prepared: Download our Estate Planning Checklist.
With their long-term benefits, Roth IRAs deserve serious consideration as part of your overall retirement income strategy. If you’d like to explore a potential Roth conversion or talk through your retirement plan, we’re always here to help.
There’s no one-size-fits-all answer—Roth conversions require a thoughtful, personalized approach. A qualified financial advisor with retirement planning expertise can help you determine if this strategy aligns with your long-term goals.
At Toberman Becker Wealth, we take a data-driven, individualized approach. We build comprehensive retirement projections using advanced modeling tools, often extending well into a client’s 90s. These models account for national economic trends, asset allocation, tax considerations, and your unique lifestyle needs, helping to guide each decision confidently.
Take the next step toward smarter investing. Schedule a complimentary call with Toberman Becker Wealth today.
A Roth IRA conversion lets you move money from a pre-tax retirement account, like a traditional IRA, 401(k), or 403(b), into a Roth IRA. You’ll pay taxes on the converted amount now, but the growth and withdrawals are tax-free from then on.
A Roth IRA conversion lets you move money from a pre-tax retirement account, like a traditional IRA, 401(k), or 403(b), into a Roth IRA. You’ll pay taxes on the converted amount now, but the growth and withdrawals are tax-free from then on.
Roth conversions aren’t a one-size-fits-all solution—they require a personalized, strategic approach. A skilled financial advisor specializing in retirement planning can help you assess whether this strategy is coordinated with your long-term financial goals.
No, a Roth conversion does not count as an RMD. Before converting, you must take your RMD from your traditional IRA(s).
A Roth conversion ladder is a strategy for gradually converting portions of a traditional IRA or 401(k) into a Roth IRA over several years. By staggering the conversions, you can access retirement funds tax and penalty-free before age 59½ while managing your tax burden.
In most cases, you cannot convert an inherited IRA to a Roth IRA unless you are the surviving spouse of the original account holder. As a spouse, however, you can roll the inherited IRA into your own IRA and then convert it to a Roth IRA
A Roth in-plan conversion allows you to roll funds from a pre-tax workplace retirement account (e.g., 401(k) or 403(b) to a Roth account within the same plan. Not all plans offer this feature, but it’s always worth checking with your employer.
Disclosure: Any mention of a particular security and related performance data is not a recommendation to buy or sell. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Nothing on this website should be considered as personalized financial advice or a solicitation to buy or sell any securities.
Craig Toberman is a Partner at Toberman Becker Wealth – a fee-only, fiduciary financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.