The best time to convert depends on your income this year and what you expect to earn next year
A Roth conversion moves money from a traditional IRA or 401(k) to a Roth IRA. You pay income tax on the amount you convert in the year you do it. The timing question is really about tax brackets: you want to convert when your tax bill will be lowest, either because your income is unusually low this year or because you expect it to be higher next year.
The most common situations are a year when you took early retirement, a year when you had a business loss, a year between jobs, or a year when you know a big income event is coming (like selling a business or exercising stock options). You can also convert gradually over several years if you want to spread the tax hit across multiple years and lower brackets.
There is no single "right" time for everyone. The math depends on your specific income, your tax bracket, and your state's tax rules. But the principle is straightforward: convert when the tax cost is lowest relative to what you expect to pay in other years.
Key Takeaways
- Convert in a year when your income is lower than usual, such as between jobs, after retirement, or following a business loss.
- You pay ordinary income tax on the converted amount in the year you convert, so a lower-income year means a lower tax bill.
- If you expect a large income event next year (bonus, stock sale, business sale), converting this year before that event can save you money.
- You can convert in multiple smaller amounts over several years instead of one large conversion to stay in a lower tax bracket.
- State income tax matters: if you plan to move to a state with no income tax, converting before you move can save you state tax.
Converting during a year of unusually low income
If your income drops significantly in a single year, that year is often the best time to convert. This includes years when you leave a job, take unpaid leave, sell a business at a loss, or retire before you start taking Social Security or pension payments.
The lower your total income that year, the lower your tax bracket, and the less you pay in tax on the conversion. For example, if you normally earn $100,000 a year but took a sabbatical and earned only $30,000 in 2024, converting $50,000 in 2024 might cost you less in taxes than converting the same $50,000 in a year when you earned $100,000.
The key is knowing your tax bracket before you convert. You can estimate this by adding up your expected income for the year, then seeing what bracket that puts you in. Your tax software or a tax professional can show you what your bracket would be at different income levels.
Converting before a predictable spike in income
If you know a large income event is coming—a bonus, the sale of a business, exercising stock options, or a big inheritance—converting before that event happens can lock in a lower tax rate on the conversion.
Say you expect to receive a $200,000 bonus in December. Your income this year will be high, and your tax bracket will be high. But if you convert $30,000 in January, before the bonus arrives, you pay tax on that $30,000 at your lower bracket for the year so far. Once the bonus arrives in December, your bracket jumps, but the conversion is already done and taxed.
This strategy works best when you can time the conversion before the income event. If the event has already happened or is only weeks away, you have missed the window for that year.
Converting over multiple years to stay in a lower bracket
Instead of converting a large amount in one year, you can spread conversions across several years. This keeps your income—and your tax bracket—lower in each individual year, which can reduce your total tax bill.
For example, if you have $100,000 in a traditional IRA and you are retired with very little other income, you could convert $20,000 per year for five years instead of $100,000 in one year. Each $20,000 conversion is taxed at your lower bracket, rather than pushing you into a higher one with a single large conversion.
This approach requires planning ahead. You need to know roughly how much you want to convert and be willing to execute the plan over multiple years. It works well if you have time before you need the money in the Roth account.
Converting when you are between jobs or taking a career break
A gap in employment is one of the clearest signals that this year is a good conversion year. Your income is lower, your tax bracket is lower, and you may have several months before your next job starts.
If you left a job in March and your next job does not start until September, you have six months of low income. Converting during those months means paying tax at a lower rate than you would in a year when you worked the full twelve months.
The same logic applies to sabbaticals, parental leave, or any other planned break from work. The lower your income that year, the more sense a conversion makes.
Converting before moving to a state with no income tax
If you plan to move from a state that has income tax to one that does not—such as moving from California to Texas or from New York to Florida—converting before you move can save you state income tax on the conversion.
When you convert, you owe federal income tax on the amount. You also owe state income tax in the state where you live on December 31 of the conversion year. If you move on January 1, you owe state tax to your old state on the conversion, not your new state.
This is a smaller benefit than federal tax savings, but it can add up. If your state income tax rate is 5 percent and you convert $50,000, you save $2,500 in state tax by converting before you move.
When not to convert: high-income years and near-retiree situations
Do not convert in a year when your income is unusually high. If you received a large bonus, sold a business, or exercised stock options, that year your tax bracket is elevated. Converting in that year means paying tax at that higher rate, which defeats the purpose.
Similarly, if you are close to retirement and expect to work only a few more years at high income, it often makes more sense to wait until you retire and your income drops. The tax savings from converting at a lower bracket later usually outweigh the benefit of converting now at a high bracket.
There are exceptions: if you have a very large traditional IRA and you know you will never have a low-income year, converting gradually over your working years might still make sense. But the general rule is to avoid converting in high-income years.
Frequently Asked Questions
Can I undo a Roth conversion if my income turns out higher than I expected?
You can recharacterize a conversion—essentially undo it—but only by the tax filing important date for that year, including extensions. This means you have until October 15 of the following year to change your mind. If your income spiked unexpectedly, you can recharacterize the conversion and avoid the tax bill.
What if I have both a traditional IRA and a 401(k)—does it matter which one I convert from?
For tax purposes, it does not matter which account you convert from. The IRS treats all your traditional IRAs as one pool for tax calculation purposes. However, 401(k) rules vary by plan. Some plans allow in-service conversions and some do not. Check with your plan administrator about what your specific 401(k) allows.
Do I have to convert the whole account, or can I convert just part of it?
You can convert any amount you want, from a small portion to the entire account. Partial conversions let you control how much tax you owe in a given year, which is why spreading conversions over multiple years is a common strategy.
What happens to my Medicare premiums if I do a large conversion?
Roth conversions count as income for Medicare premium calculations. A large conversion can push your income higher and increase your Medicare Part B and Part D premiums. If you are on Medicare or will be soon, factor this into your conversion timing.
Does a Roth conversion affect my Social Security taxes?
Yes. Conversion income counts toward the formula that determines whether your Social Security benefits are taxed. A large conversion can push more of your Social Security into taxable income. This is another reason to consider spreading conversions over multiple years if you are near or in Social Security.