You may think of your retirement accounts as “yours.” (And it is.) But the IRS sees things a bit differently.
Once you make withdrawals from traditional IRAs and 401(k)s, Uncle Sam will come knocking for his cut. And for Bay Area professionals with seven-figure portfolios, that cut can be steep.
Roth conversions can help. By paying taxes today, you could create a pool of tax-free income tomorrow — one that isn’t subject to required minimum distributions, and one that can pass to beneficiaries without a tax surprise. The key is knowing when the trade-off makes sense.
What Is a Roth IRA Conversion?
A Roth IRA conversion is the process of moving money from a traditional IRA, 401(k), or SEP IRA into a Roth IRA. On the surface, it’s just a rollover from one retirement account to another. But the real difference lies in how those dollars are taxed.
With a traditional account, contributions are typically made pre-tax. That means you enjoy a tax deduction up front, but withdrawals in retirement are taxed as ordinary income.
With a Roth IRA, it’s the opposite: you pay taxes on the money when it goes in, but once it’s there, growth is tax-free — and so are withdrawals, as long as you follow IRS rules. That holds true for beneficiaries, too.
A conversion is essentially a tax trade-off. The amount you convert is treated as taxable income in the year of the conversion. This could bump you into a higher tax bracket, so it’s important to approach this tactic strategically.
Partial vs. Full Roth Conversions
Roth conversions can unlock tax-free growth and tax-free withdrawals — but at the cost of an immediate tax bill.
Converting too much in a single year may trigger not only a bigger IRS tab but also unintended consequences, like higher Medicare premiums. Conversely, spreading conversions over multiple years, especially during periods when your income is lower, can help alleviate the impact.
Partial Roth Conversion
Let’s assume you have taxable income of $200,000 in 2025 and a traditional IRA worth $300,000.
You convert $50,000 into a Roth IRA, so taxable income rises to $250,000 but stays within your current Marginal Tax Bracket. The conversion triggers roughly $16,000 in additional federal taxes (32% of $50,000), plus California state taxes — which can climb as high as 13.3%.
While the upfront bill stings, you’ve locked in tax-free growth on that $50,000 for the rest of your lifetime and for any beneficiaries.
Full Conversion
If you convert the entire $300,000 in one year, your taxable income jumps to $500,000. That leap pushes a significant portion into the 37% federal bracket. Instead of paying an estimated $96,000 in federal taxes over six years of partial conversions (32% of $300,000), you’d owe closer to $104,000 by doing it all at once — and again, California would take its own cut.
Converting incrementally can be more efficient than a one-and-done approach. That’s particularly true if you time these conversions in the early years of retirement, when you’re likely using taxable accounts to fund your lifestyle (i.e., when taxable income is negligible).
When Roth Conversions Make the Most Sense
A Roth conversion isn’t a silver bullet. The strategy works best under certain conditions, typically when you have more control over your tax situation (i.e, the flexibility to spread out conversion taxes).
So, when are the most beneficial windows for conversions?
Before Required Minimum Distributions
Once you reach age 73, the IRS requires you to take withdrawals from traditional retirement accounts — whether you need the money or not.
These required minimum distributions (RMDs) can balloon your taxable income, push you into a higher tax bracket, and even increase the portion of your Social Security that’s taxed. Converting before RMDs begin helps you reduce those future distributions.
During Lower-Income Years
The initial years of retirement can be a sweet spot for conversions. With lower income, you can move money from a traditional IRA to a Roth while staying in a lower tax bracket. This creates long-term tax savings without triggering an outsized tax bill upfront.
Before Claiming Social Security
Adding Roth conversions on top of Social Security benefits can inadvertently increase how much of your benefit is taxable. Executing conversions before claiming allows you to control the timing and tax liability.
For Estate Planning and Beneficiaries
Leaving heirs a traditional IRA means they’ll inherit not only the assets but also the ordinary income taxes tied to withdrawals. A Roth IRA, on the other hand, passes down as a tax-free account, giving your beneficiaries flexibility without the tax headache. For many East Bay families focused on legacy planning, this is a key driver.
After Market Declines
A down market can make conversions especially attractive. Converting assets while values are temporarily lower means the IRS taxes you on a smaller converted amount — while any future rebound happens in your Roth as tax-free growth.
When Roth Conversions Might Backfire
Roth conversions aren’t always the right move, right now. Sometimes, the immediate tax cost may outweigh the long-term benefit.
Future Tax Rates May Be Lower
If you expect to drop into a lower tax bracket later — say, after retiring or selling your business — converting now could mean paying more taxes than necessary. Take our earlier situation for example. A $300,000 Roth conversion on top of a $200,000 salary creates a much larger tax liability than a six-figure conversion with no annual salary.
Lack of Liquidity to Pay the Tax Bill
Conversion taxes should be paid with funds outside your retirement accounts. If you need to dip into the converted assets themselves, you risk eroding the value of the strategy. Worse, if you’re under 59½, using retirement assets to cover the tax can trigger early withdrawal penalties.
Pushing Yourself Into a Higher Bracket
Large conversions in a single year can drive up your ordinary income and push you into the top IRS tax brackets. That means a much bigger tax bill than if you had spread conversions over several years.
Impact on Medicare and Other Benefits
If your taxable income exceeds $106,000 individually or $212,000 if you’re married filing jointly, you’ll trigger an additional monthly surcharge on top of your Medicare premiums. This is known as the Income-Related Monthly Adjustment Amount (IRMAA), which could double your Medicare payments.
Short Time Horizon
Roth conversions work best when the assets have time to grow. If you need to tap the money within a few years, the tax-free growth window may not be long enough to outweigh the upfront cost.
How to Approach Roth Conversions Strategically
Roth conversions are most effective when they’re part of a broader tax plan. Let’s discuss three strategies in particular that we typically see come into play.
Backdoor Roth Conversions
Normally, high earners can’t contribute directly to a Roth IRA — 2025 income limits phase out Roth contributions once modified adjusted gross income (MAGI) passes $165,000 (single) or $246,000 (married filing jointly).
A backdoor Roth is a workaround:
- You make a non-deductible contribution to a traditional IRA (up to $7,000 in 2025, plus a $1,000 catch-up if you’re 50+).
- Then you immediately convert it into a Roth IRA.
There is a bit of a catch though. The IRS requires you to consider all your IRA balances under the pro-rata rule. If you already have pre-tax dollars in other IRAs, part of the conversion will be taxable.
That’s why many high earners roll pre-tax IRA assets into a qualifying 401(k) first, leaving a “clean” IRA for backdoor contributions. Done right, it’s a way to keep funneling new money into tax-free growth even if you’re otherwise ineligible.
Mega Backdoor Roth Conversions
Some employer retirement plans allow for a mega backdoor Roth.
In 2025, the total contribution limit to a 401(k) is $70,000 (or $77,500 if age 50+).
Standard pre-tax or Roth deferrals are capped at $23,000, plus $7,500 if you’re 50+. The rest can potentially come from after-tax contributions, if your plan allows it. Those after-tax contributions can then be rolled into a Roth IRA or converted within the plan itself.
In turn, you could move tens of thousands of dollars annually into Roth accounts — far beyond normal IRA contribution limits. Not every plan allows it, and the logistics (rollovers, timing, provider rules) can be complex, so it’s generally recommended to coordinate with a tax advisor and/or a financial advisor.
Pairing Conversions With Tax-Loss Harvesting
One way to cushion the blow of conversion taxes is by realizing losses elsewhere in your portfolio.
Tax-loss harvesting allows you to sell investments that have declined and use those losses to offset capital gains. You can even apply up to $3,000 per year against ordinary income. So long as you reinvest the sale proceeds into something that isn’t substantially identical to the original investment, you won’t violate the IRS’s wash-sale rule.
Here’s where it gets interesting: if you strategically harvest losses in your brokerage account during a down year, you can use those losses to help offset the higher taxable income from a Roth conversion.
This is particularly effective during market downturns:
- Depressed asset values mean a smaller converted amount (less taxable income upfront).
- Any recovery in value happens inside the Roth, where it compounds without future tax drag.
Take Control of Your Life After Work
By paying taxes on your terms, you create flexibility for the decades ahead: fewer forced withdrawals, more tax-free income, and a legacy that benefits your family instead of the IRS.
At BEW, we call this planning for your Life After Work — the stage where your career success fuels the next chapter of purpose and financial freedom.
Ready to explore what your own Life After Work could look like? Download our free guide, Retirement Redefined: Your Guide to Life After Work.
