The Roth Conversion Ladder: Paying Taxes Now to Save More Later
There's a tax trap hiding inside large traditional IRA and 401(k) balances that most people don't see until it arrives.
The RMD Problem
At age 73, the IRS requires you to withdraw a percentage of your tax-deferred balance every year, whether you need the money or not. For people with substantial traditional balances - $800,000 or more - the RMDs can push retirement income into brackets higher than expected.
The Roth Conversion as the Solution
A Roth conversion moves money from a traditional account to a Roth IRA. You pay income taxes in the year of conversion. In exchange, the money grows tax-free, withdrawals are tax-free, and there are no RMDs required during your lifetime.
The Math Behind Roth Conversions
- Converting at 22% when RMDs would be taxed at 24%: worth doing
- Converting at 24% when RMDs would also be 24%: close to neutral, though Roth has advantages for heirs
- Converting at 32% when RMDs would be at 22%: probably not beneficial
The bottom line
The goal is to fill up low-bracket space now and reduce forced distributions later.
No Income Limit on Conversions
There is no income limit on Roth conversions. A person earning $500,000 who can't contribute directly to a Roth IRA can still convert traditional IRA funds to Roth. This is different from the direct contribution limits.
What would you do?
Sam is 63 with $1.1M in a traditional IRA. He retires at 65. His RMDs beginning at 73 will force approximately $55,000/year in taxable income - before Social Security.
Your Move
Look at your current traditional IRA and 401(k) balance. Multiply it by approximately 3.65% - that's roughly what your RMD will be at age 73. Add your expected Social Security. Does the combined number push you into a higher bracket than today? If yes, Roth conversions in lower-income years may be worth modeling.
Sources
- Internal Revenue Service, Publication 590-B
Distributions from IRAs (Roth conversions and the conversion 5-year rule)
Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026