What a conversion actually is
A Roth conversion moves money from a Traditional IRA or 401(k) into a Roth. The converted amount is added to your taxable income for the year, so you pay ordinary income tax on it now, and everything after that grows and withdraws tax-free.
You are voluntarily accelerating a tax bill. That only makes sense if the rate you pay now is lower than the rate you would have paid later.
Bracket headroom is the whole game
The mistake that costs the most is converting a round number instead of the right number. If you have $18,000 of room left in the 22% bracket and you convert $60,000, the excess is taxed at 24%. You have volunteered to pay a higher rate for no reason.
The calculator shows exactly how much room remains. Convert to the top of your bracket, stop, and continue in January. A conversion spread across three calendar years at 22% costs dramatically less than the same amount converted at once through 24% and 32%.
Pay the tax from outside the account
If you use the IRA itself to pay the conversion tax, you shrink the very balance you were trying to move, and if you're under 59½, the withheld portion counts as a distribution and can attract a 10% penalty on top. Converting is worth doing mainly when you have taxable cash available to cover the bill.
Second-order effects worth knowing
- Medicare IRMAA. Premiums are set from your income two years prior. A large conversion at 63 can raise Part B and D premiums at 65.
- Social Security taxation. Higher AGI can push more of your benefits into the taxable 50% or 85% tiers.
- Capital gains stacking. A conversion lifts ordinary income, which can push long-term gains from the 0% band into 15%.
- ACA subsidies. If you buy marketplace coverage, a conversion can cut or eliminate your premium tax credit.
It cannot be undone
Recharacterising a conversion (reversing it if markets fell or you miscalculated) was repealed in 2018. Once converted, it stays converted. That permanence is the reason to convert deliberately in measured amounts rather than in one large move.
Who should usually not convert
If you are in your peak earning years and expect a materially lower bracket in retirement, converting means paying a high rate to avoid a low one. If you would have to raid the IRA to pay the tax, the maths rarely works. And if you plan to leave the account to charity, converting wastes the tax entirely: a charity receives a Traditional IRA free of income tax anyway.