How a Roth Conversion Works (And When It Actually Makes Sense)

Here's what actually happens when you convert your ira to a roth, step by step.

1. Choose which account to convert from. This is typically a traditional ira, but it can also be an old employer 401(k), a SEP IRA, or a SIMPLE IRA. If your money is still in a current employer's plan, you may need to roll it into a traditional ira first.

2. Open a roth ira (if you don't have one). If this is your first roth conversion, you'll need a roth ira to receive the funds. Your custodian (Schwab, Fidelity, etc.) can set this up in minutes.

3. Request a direct trustee-to-trustee transfer. This is important. You want the money to move directly between accounts, not through your hands, to avoid accidental distributions or withholding headaches.

4. The converted amount hits your taxable income. Let's say a Bentonville couple has $120,000 of other taxable income in 2026 and converts $80,000 from their traditional ira. Their total taxable income for the year jumps to $200,000. That's how the tax bill gets calculated-based on the combined total.

5. Pay the taxes. You have a few options: increase estimated tax payments throughout the year, adjust withholding on other income, or pay in full when you file. The best move for your long-term retirement savings is to pay taxes from a taxable account-savings, brokerage, checking-rather than from the retirement account itself. Using non-IRA funds to pay conversion taxes maximizes the growth potential of the roth.

6. Understand the 5-year rule. Converted funds must remain in the roth ira for five years to avoid penalties on earnings. The five-year rule applies to converted funds for tax free withdrawals of earnings-though if you're over 59½, this mostly affects the earnings portion, not the converted principal.

One more thing worth repeating: you cannot revert the money back to a traditional ira after conversion. Under current law, roth conversions are permanent. No recharacterizations, no take-backs. That makes it critical to double-check your strategy and tax impact before you hit "convert."

The core roth conversion question is deceptively simple: will you pay taxes at a lower rate now, or a higher rate later? The answer depends on comparing your current vs. future tax brackets-including both federal and Arkansas state income tax.

When you convert, the converted amount is added to your taxable income. That can push you into a higher tax bracket. For example, roth conversions can push taxpayers from the 22% bracket into the 24% or even 32% bracket in the conversion year. And it's not just about federal income tax rates. A large roth conversion can also increase your income-related Medicare premiums (called IRMAA), affect taxation of social security benefits, and bump your state income tax in Arkansas.

Let's put numbers to it. Say you're near the top of the 24% federal bracket and convert $100,000 in one year. A big chunk of that gets taxed at 24%, but some might spill into the 32% bracket. Your marginal tax rate on the spillover jumps significantly. Now compare that to waiting for a lower-income year-maybe after you fully retire but before RMDs kick in-when you might be in the 12% or 22% bracket. The difference in conversion taxes could be tens of thousands of dollars.

Here's an extreme example that drives the point home: converting a $1M traditional IRA at the 32% federal tax rate results in roughly $380,000 in taxes owed. That's a massive upfront tax cost. But if those funds then grow tax free for 20 years, the math can still work out if the alternative was deferring taxes and eventually paying at similar or higher rates.

It is important to weigh the immediate tax cost against long-term tax free growth when considering a roth conversion. Think in terms of your "effective family tax rate" over a lifetime-including what your heirs would face-not just this year's tax bill.

The current 2026 federal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) were preserved by recent legislation, but future tax brackets are never guaranteed. Many pre-retirees are choosing to lock in today's federal tax rates while they can.

A roth conversion is not "always good" or "always bad." It depends entirely on your personal financial situation. Here are the most common green-light scenarios we see at Revolutionary Wealth.

Trough years between retirement and RMDs. The years between retirement and required minimum distributions rmds create a prime window for roth conversions. During this stretch-often ages 62 to 72-many people have lower taxable income because they're no longer earning a paycheck, haven't started Social Security, and aren't yet forced to take RMDs. Converting during low-income years can dramatically reduce the tax impact. You're essentially "filling up" a lower tax bracket with conversion income instead of leaving that bracket space empty.

Market downturns. When the market drops and your traditional ira balance shrinks temporarily, that's an opportunistic time for converting to a roth. You pay tax on a smaller converted amount, and the rebound happens inside a roth ira where it grows tax free. Converting to a roth ira can increase after tax wealth significantly over time when you catch a downturn.

Large tax-deferred balances with big future RMDs. If you've been a supersaver-$2M to $5M+ in pre tax accounts-your required minimum distributions in your 70s and 80s could force you into a higher tax bracket every single year. Gradual conversions over a decade can smooth those future tax brackets and avoid a "tax bomb." For more on how RMDs interact with retirement planning, see our guide on understanding RMDs and annuities.

Estate and legacy planning. If your adult kids live in higher-tax cities like Dallas or New York and would inherit your pretax assets in a high income tax rate environment, converting now can shift the burden from them to you at lower rates. Beneficiaries of roth iras can withdraw funds tax free, creating a genuinely tax free inheritance. Roth iras can also reduce estate taxes for high-net-worth individuals. Our advanced estate planning strategies guide dives deeper into this.

Business owners selling a company. In Northwest Arkansas, plenty of business owners see income dips in the years before or after a sale. Those windows can be prime for conversions if coordinated with a broader exit and succession plan.

Conversions are beneficial if current tax rates are lower than expected future rates. That's the recurring theme. At Revolutionary Wealth, we model side-by-side scenarios-say, "convert $50K per year for 7 years vs. never convert"-to illustrate real long-term impacts for each client.

There are plenty of times when paying conversion taxes is just lighting money on fire. Here's how to spot those traps.

Your current bracket is higher than your future bracket. If you're still in peak-earnings years and expect lower retirement spending with modest Social Security and no pension, deferring taxes may be cheaper. Roth conversions aren't free-they accelerate a tax hit that might never be as large if you simply let the money sit and withdraw it at a lower income tax rate later.

You don't have cash outside retirement to cover the tax bill. If you must withhold from the retirement account itself, especially before age 59½, using IRA funds to pay conversion taxes can trigger penalties. Plus, every dollar withheld for taxes is a dollar that stops compounding. The lost principal often erases much of the benefit.

Short time horizon. If you're in your late 60s or early 70s and will need to withdraw money within 5–7 years, the tax free growth window may be too short to overcome the upfront tax cost. You need time for the roth to "earn back" what you paid in taxes.

Healthcare and benefit cliffs. Big conversions can spike your modified adjusted gross income, potentially triggering IRMAA surcharges that cost hundreds to thousands per year in extra Medicare premiums. For pre-65 retirees on ACA plans, higher income can also reduce or eliminate premium subsidies. These side effects need to be modeled, not guessed at.

Charitable intent. If you plan to make qualified charitable distribution gifts after age 70½, converting that portion of your traditional ira to a roth first often makes no sense. A qualified charitable distribution from a traditional ira already goes to the charity without any tax being owed. Converting it first just creates an unnecessary tax bill.

Before you call your tax advisor about a roth conversion, run these three tests. They're the same framework we use with clients right here in Bentonville.

Test 1: Can I Comfortably Pay the Upfront Tax from Outside Savings?

Ideally, you cover conversion taxes from a bank account, brokerage, or other taxable account-money that's already been taxed. If the only way to pay the taxes is to pull from the IRA itself, that's a yellow or red flag. You'll lose compounding power, and if you're under 59½, penalties could apply.

Test 2: Is My Current Tax Rate Likely Lower Than My Future Tax Rate?

Think through what's ahead: expected pensions, Social Security timing, the size of your future RMDs, your spouse's filing status (what happens if you become widowed?), and possible changes to federal income tax rates. If your future tax rate looks higher than today's, converting now locks in the lower rate. If your income exceeds current thresholds only temporarily, that might still be the right window.

Test 3: How Long Until I (or My Heirs) Spend This Money?

If the funds won't be needed for 15–25+ years, a roth conversion is more likely to pay off thanks to decades of tax free growth. If you'll need the money in the next 5 years, it's rarely worth the upfront tax hit. Roth iras allow tax free growth on investments, but they need time to work their magic.

A quick example that passes all three tests: A 62-year-old recently retired manager in Bentonville with $1.2M in pre tax assets, currently in a lower tax bracket because she's living on savings and hasn't started Social Security. She has $80,000 in a checking account to cover taxes. She doesn't plan to touch this money for 20 years. That's three green lights.

With roth conversions, "how much" and "when" matter just as much as "yes" or "no." The smartest play is almost never all-or-nothing.

Filling the brackets means converting only enough to reach the top of your targeted federal tax bracket without spilling into the next one. For 2026, married filing jointly taxpayers hit the 24% bracket from about $211,400 to $403,550 of taxable income. If your other income puts you at $180,000, you could convert roughly $30,000 and stay comfortably within the 24% bracket. You can partially convert a traditional IRA to manage tax implications precisely this way.

Annual partial conversions are the workhorse strategy. Converting $30,000 to $80,000 each year over, say, ages 60 to 70 is usually far more tax-efficient than one massive conversion. Partial conversions help manage taxable income over several years, provide flexibility to adjust as tax law changes, and give you room to react to life surprises. Roth iras provide flexibility in managing taxable income during retirement-this is one of the clearest examples.

Coordinate with Social Security and RMD timing. Many clients delay Social Security to age 70 for the larger benefit. That creates a sweet spot-roughly ages 62 to 69-where retirement income is lower and conversion space is widest. Once Social Security and RMDs both kick in, you may have less bracket room to convert without triggering higher taxes.

At Revolutionary Wealth, we use detailed tax projection software and our broader resource center to map out multi-year conversion plans for Arkansas residents, including state income tax interaction, projected RMDs, and IRMAA modeling.

Some situations deserve extra attention-and almost always require professional help from the Revolutionary Wealth team.

Backdoor Roth Strategy

High earners who exceed the roth contribution income limits can still build roth ira wealth through backdoor roth iras. The mechanics: make a nondeductible contribution to a traditional ira (using after tax dollars), then immediately convert it to a roth ira. The catch is the pro-rata rule. If you have other pre tax ira balances, the IRS treats the taxable portion of your conversion proportionally across all your traditional iras. That can create an unexpected tax bill. For a deeper look, check out our guide on high-income roth ira strategies.

Business Owners with Fluctuating Income

If you run a business in Northwest Arkansas and your income swings year to year, low-profit years or sabbatical years are natural windows for converting to a roth. Post-sale years-where capital gains have already been realized and ordinary income drops-can also work well. Coordinate conversions with your broader retirement plan and any defined benefit or cash balance plans you may have. Investment strategies and exit planning should be considered together, not in isolation.

Single, Divorced, or Widowed Women

When a spouse passes and the surviving partner shifts from married filing jointly to single filing status, the tax brackets compress dramatically. A roth conversion before or shortly after widowhood-while you're still in a lower tax bracket under joint filing-can lock in significant tax benefits. This is something Revolutionary Wealth works on regularly with clients navigating these transitions, where clarity and confidence in financial decisions matter most.

Tax law, retirement savings, and conversion rules are complex-there's no way around it. Our role at Revolutionary Wealth is to bring clarity and actual numbers to the decision, not just opinions.

We're an independent wealth management firm based in Bentonville, Arkansas, working with pre-retirees, retirees, and business owners. When it comes to roth conversions, here's what we actually do:

• Multi-year tax projections comparing conversion vs. no-conversion scenarios

• Current vs. future tax bracket analysis including Arkansas state income tax (with the $6,000 retirement income exclusion and Social Security exemption baked in)

• RMD forecasts to show how pretax balances will force future tax bills

• Social Security and Medicare impact modeling to catch IRMAA cliffs and benefit interactions

• Estate and legacy modeling so your heirs' tax situation is part of the equation

We coordinate with your CPA and estate attorney to align roth conversion decisions with overall tax strategy, business exit planning, and legacy goals.

Investing involves risk, and every conversion decision should reflect your complete picture. This is not investment advice or tax advice for your specific situation-it's a starting point. If you want to explore whether converting to a roth fits your retirement plan, reach out to us for a no-pressure conversation. The first step is usually a simple review of your current retirement accounts, taxable income, and goals.

Here are answers to the practical questions that come up most often in our Bentonville office-things that didn't fit neatly into the sections above.