Roth Conversion Calculator

A Roth conversion is most advantageous when you expect to pay a higher tax rate in the future than you pay today. But tax rates aren't the only factor — the time horizon, how you pay the tax bill, and your broader financial picture all matter.

Scenarios where conversion often makes sense:

• You're in a temporarily low tax bracket — Maybe you took a sabbatical, switched careers, or are between jobs. If your income is unusually low this year, your marginal tax rate is lower than normal, and it's a prime window to convert at a discount.
• You expect higher future tax rates — If you believe Congress will raise tax rates in the future (or that your income will grow significantly), locking in today's lower rates through a conversion can save you substantial money.
• You have a long time horizon — The longer the money stays in the Roth, the more time it has to grow tax-free. A 30-year-old converting has a much stronger case than a 60-year-old, all else being equal.
• You can pay the tax bill from outside funds — Paying the conversion tax from a brokerage account or savings (rather than from the converted amount itself) maximizes the amount that goes into the Roth and compounds tax-free.
• Your account value has dropped — A market downturn actually creates a conversion opportunity. You convert a smaller dollar amount (paying less tax), and then the recovery happens inside the Roth, completely tax-free.

When conversion may NOT make sense: If your current tax rate is significantly higher than your expected retirement rate, or if you need the money for the tax bill and would have to pull it from the conversion itself, the math often favors keeping the Traditional IRA.

The tax treatment of a Roth conversion is straightforward but has several important nuances that can significantly affect the outcome.

Federal income tax: The converted amount is added to your ordinary income for the year. This means a large conversion could push you into a higher marginal tax bracket. For example, if you earn $80,000 and convert $50,000, the IRS treats your income as $130,000 for that year. Part of the conversion may be taxed at 22%, and part at 24% (based on 2024 brackets).

State income tax: Most states tax Roth conversions as ordinary income as well. However, states like Florida, Texas, Nevada, and Washington have no state income tax, making conversions particularly attractive for residents. If you're planning to move to a no-income-tax state, you may want to wait until after the move to convert.

Medicare surcharge (IRMAA): A large conversion can push your Modified Adjusted Gross Income (MAGI) above the threshold that triggers higher Medicare Part B and Part D premiums. This is especially relevant for retirees or those approaching 65. The surcharge is based on income from two years prior, so a conversion in 2024 could affect your 2026 premiums.

Impact on other tax benefits: Higher income from a conversion can also affect the taxability of Social Security benefits, eligibility for ACA premium subsidies, and qualification for various deductions and credits. It's important to model the full picture, not just the marginal rate.

No 10% early withdrawal penalty: Unlike early withdrawals from a Traditional IRA, Roth conversions are not subject to the 10% early withdrawal penalty — even if you're under 59.5. However, the 5-year rule applies to the converted amounts (see the 5-year rule FAQ below).

A Roth conversion ladder is a strategy used by early retirees (those retiring before age 59.5) to access their retirement funds without paying the 10% early withdrawal penalty. It exploits the 5-year rule on Roth conversions to create a rolling pipeline of accessible funds.

How the ladder works:

• Year 1 (e.g., age 40) — Convert $50,000 from Traditional to Roth. Pay taxes on it. Start a 5-year clock.
• Year 2 (age 41) — Convert another $50,000. Start another 5-year clock. Live off other savings or taxable brokerage accounts.
• Years 3-5 — Continue annual conversions. Each conversion has its own 5-year clock.
• Year 6 (age 45) — The first rung of the ladder is now accessible. You can withdraw the $50,000 you converted in Year 1 with no taxes and no penalty.
• Year 7+ (age 46+) — Each subsequent year, another rung becomes available. You now have a perpetual pipeline of penalty-free, tax-free withdrawals.

Why this strategy is powerful for FIRE: The FIRE (Financial Independence, Retire Early) community uses this strategy extensively because it bridges the gap between early retirement and age 59.5 when you can access retirement accounts normally. During the 5-year waiting period, early retirees live off taxable brokerage accounts, cash reserves, or Roth contribution basis (which can always be withdrawn tax and penalty-free).

The key advantage is that each year's conversion can often be done in a very low tax bracket if you've retired and have little other income. Converting $50,000 per year while in the 12% bracket means you pay far less than you would have in the 24% or 32% bracket during your working years.

In most cases, spreading conversions across multiple years (partial conversions) produces a better tax outcome than converting everything in one year. The reason comes down to progressive tax brackets.

The bracket-filling strategy: Rather than converting your entire $500,000 Traditional IRA in one year (which would push much of it into the 32% or 35% bracket), you convert just enough each year to stay within a lower bracket. For example, if you're in the 22% bracket and the top of that bracket is $95,375 (for single filers in 2024), you might convert only enough to fill up the remaining space in the 22% bracket — or perhaps fill up to the top of the 24% bracket if you're comfortable with that rate.

Advantages of partial conversion:

• Lower average tax rate — By staying in lower brackets, you pay a lower blended tax rate on the total conversion over time.
• Avoid Medicare surcharges — Keeping income below IRMAA thresholds prevents higher Medicare premiums.
• Preserve ACA subsidies — If you're on an ACA marketplace plan, keeping MAGI low protects your premium tax credits.
• Flexibility — You can adjust the amount each year based on your income, market conditions, and tax law changes.

When full conversion might be better: If you're in a uniquely low-income year (e.g., gap between jobs, early retirement with minimal income), converting a large amount while you're in the 10% or 12% bracket can be more efficient than converting smaller amounts over years when your income is higher. Use this calculator with different conversion amounts to compare the outcomes.

The pro-rata rule is an IRS regulation that prevents you from cherry-picking only the non-deductible (after-tax) portion of your Traditional IRA for a Roth conversion. It applies when your Traditional IRA contains a mix of pre-tax and after-tax contributions.

How the pro-rata rule works: The IRS treats ALL of your Traditional IRA accounts as one combined pool. If you have $90,000 in pre-tax contributions and earnings plus $10,000 in non-deductible (after-tax) contributions, 90% of any conversion is taxable and 10% is tax-free — regardless of which specific IRA account you convert from.

Example: You have a Traditional IRA with $95,000 total — $85,000 is pre-tax and $10,000 is non-deductible basis. You want to convert $10,000, hoping to convert just the after-tax portion tax-free. The pro-rata rule says no: 89.5% of the conversion ($8,950) is taxable, and only 10.5% ($1,050) is tax-free.

Important nuances:

• All IRAs are aggregated — If you have multiple Traditional IRAs, SEP IRAs, or SIMPLE IRAs, they are all combined for the pro-rata calculation. You can't isolate one account.
• 401(k)s are NOT included — Employer plans like 401(k)s and 403(b)s are excluded from the aggregation. This creates a potential workaround: roll the pre-tax portion of your IRA into your employer's 401(k) (if it accepts rollovers), leaving only the after-tax basis in the IRA. Then you can convert the remaining after-tax amount to a Roth with minimal tax.
• Calculated as of December 31 — The pro-rata calculation uses your total IRA balance as of December 31 of the year you convert, not the date of conversion.

This calculator assumes all converted amounts are fully pre-tax (the most common scenario for most people). If you have after-tax basis in your Traditional IRA, the actual tax cost of conversion would be somewhat lower than shown.

The 5-year rule for Roth conversions is often confused with the 5-year rule for regular Roth IRA contributions, but they work differently. Understanding this distinction is critical, especially for early retirees.

The conversion-specific 5-year rule: Each Roth conversion has its own 5-year holding period. If you withdraw the converted amount before the 5-year period ends AND you're under age 59.5, you'll owe a 10% early withdrawal penalty on the amount (but no additional income tax, since you already paid that at conversion).

Key details:

• The clock starts January 1 — If you convert on December 15, 2024, the 5-year clock starts January 1, 2024. So you can withdraw the converted amount penalty-free on January 1, 2029 — just over 4 years of actual waiting.
• Each conversion has its own clock — A conversion done in 2024 and another in 2025 have separate 5-year clocks. The 2024 conversion is free at the start of 2029; the 2025 conversion is free at the start of 2030.
• Doesn't apply after age 59.5 — Once you reach 59.5, the conversion-specific 5-year penalty rule no longer applies. You can withdraw converted amounts immediately without penalty.
• Ordering rules help — The IRS requires withdrawals from Roth IRAs in this order: (1) regular contributions (always tax and penalty-free), (2) conversions (FIFO order, subject to 5-year rule if under 59.5), (3) earnings (taxable and penalized if not qualified).

The other 5-year rule (for earnings): There is a separate 5-year rule that applies to Roth IRA earnings. To withdraw earnings tax-free, the Roth must have been open for at least 5 years AND you must be 59.5 or older (or qualify for an exception like disability or first home purchase). This clock starts when you open your first-ever Roth IRA, so if you've had any Roth IRA for 5+ years, this rule is already satisfied for all your Roth accounts.

When you choose to pay the conversion tax from outside funds (such as a brokerage account or savings), the full conversion amount goes into your Roth IRA. This sounds better, and it usually is — but there's an opportunity cost that this calculator models accurately.

The opportunity cost: The money you use to pay the tax bill from outside funds could have been invested and earned returns. For example, if your tax bill is $24,000 and your expected return is 7%, that $24,000 would have grown to about $91,500 over 20 years in a taxable brokerage account. By using it to pay the conversion tax, you forgo that growth.

How the calculator handles it:

• Outside funds mode — The full conversion amount enters the Roth. The calculator subtracts the opportunity cost of the tax payment (what that money would have grown to if invested instead) from the convert-scenario's total. This gives you an accurate apples-to-apples comparison.
• From converted amount mode — The tax is deducted from the conversion itself, so less enters the Roth. There is no external opportunity cost because no outside funds are used. However, you lose the benefit of tax-free compounding on the tax portion.

In most scenarios, paying from outside funds produces a better outcome because the value of tax-free compounding inside the Roth exceeds the after-tax growth of those same dollars in a taxable account. But the margin can be slim, and this calculator lets you compare both approaches to see which one works better for your specific numbers.