The Roth Conversion Sweet Spot

Timing a Roth conversion during gap years can lower taxes and boost long-term retirement flexibility.

Strategic Roth conversions may help retirees avoid larger tax bills later in life. Andrey_Popov/Shutterstock

One of the main benefits of a Roth IRA is qualified tax-free withdrawals in retirement. But many people have spent decades saving in a traditional IRA or 401(k) for the up-front tax benefits.

Luckily, there’s something known as a Roth conversion. This is a process that allows you to convert funds from a traditional IRA into a Roth IRA, as long as you pay taxes on the converted amount.

But timing your Roth conversion properly could minimize the tax burden and provide you with additional benefits.

That’s why many financial advisers recommend you perform a Roth conversion during the so-called sweet spot or gap years.

What Is the Roth Conversion Sweet Spot?

Many financial professionals consider the Roth conversion sweet spot to be sometime between early retirement and before you start collecting Social Security benefits, and also before you begin taking required minimum distributions (RMDs).

The average retirement age for men is 65 and the average retirement age for women is 63, according to data by financial services firm Empower. You can start collecting Social Security benefits at age 62. And RMDs begin at age 73.

As a result, the gap years vary for everyone. The key point to consider here is your tax profile.

Theoretically, you’d be in your lowest tax bracket after early retirement and before you start collecting Social Security, and also before RMDs kick in. As a result, the tax impact on the conversion could be minimal if the conversion is made during that gap period.

With that said, another point to consider before you engage in a Roth conversion is the amount you’re converting. You don’t need to convert your entire traditional IRA balance. In fact, you can make multiple conversions across time. This is a process called staggering conversions.

Many financial advisers recommend you convert enough to fill the lower tax brackets such as the 12 percent and 22 percent brackets, without pushing your income into the proceeding brackets of 24 percent and beyond.

The goal is basically to pay a lower tax rate on the conversion than the one you would pay if you withdraw the funds later in retirement. In other words, a Roth conversion makes sense if you believe you’ll be in a higher tax bracket if you make the withdrawal later on.

Moreover, staggering conversions allows you to essentially reduce the balance of your traditional IRA and potential RMDs. This is because RMDs are calculated in part by the size of your IRA balance.

One unintended consequence of RMDs for many retirees is that these distributions end up being large enough to bump them into higher tax brackets. In some cases, it’s enough to trigger or increase taxation of their Social Security benefits. And it can also set off Medicare surcharges through the Income-Related Monthly Adjustment Amount (IRMAA).

If done strategically, however, Roth conversions could help you avoid these tax torpedoes. But if not done correctly, a Roth conversion could strike your nest egg.

So to not get blindsided, let’s take a look at some potential risks and how to avoid them.

Using IRA Money to Pay Conversion Taxes

When you make a Roth conversion, you’ll owe income taxes on the converted amount for the year in which the conversion took place.

So you need to make sure you have cash on hand to cover that bill.

You don’t want to use funds from your traditional IRA to pay taxes on the conversion for a few reasons.

First, the money withdrawn from your traditional IRA would be considered a taxable distribution. So you could get hit with an even bigger tax bill for the year of the conversion.

Second, you could also face a 10 percent tax penalty on that distribution if you’re under the age of 59.5.

Plus, the money that’s leaving your traditional IRA to pay conversion taxes would no longer enjoy tax-deferred growth.

So before you engage in a tax conversion, make sure you can pay the tax bill with money from your savings or checking account.

You Can’t Enjoy the Money Immediately

Before you make a Roth conversion, you need to be aware of the five-year rule. You must wait five years before withdrawing earnings from the converted amount tax-free. The holding period starts January 1 of the year of the conversion.

Plus, each conversion has its own five-year holding period.

And in order to withdraw earnings penalty-free, you must be at least 59.5 years old.

A Note About IRMAA

If you’re already receiving Medicare or are approaching the Medicare age of 65, you’d also want to brush up on the Income-Related Monthly Adjustment Amount (IRMAA). This is a surcharge on Medicare Part B and Medicare Part D premiums that affects high earners.

But here’s where it gets tricky.

The government decides if you owe IRMAA based on your modified adjusted gross income (MAGI) from two years prior.

So you could owe IRMAA in 2026 if your 2024 MAGI exceeded $109,000 as an individual filer or if it surpassed $218,000 as a couple filing jointly.

So a Roth conversion in 2026 may trigger IRMAA in 2028 if it’s large enough to boost your income to IRMAA levels.

This is why it’s key to consider making a Roth conversion during the sweet spot of the low-income years. And it would also help to make sure you use the conversion to fill the low tax brackets of 12 percent and 22 percent, without going farther.

The Bottom Line

Roth conversions during the sweet spot years of lower taxable income can be highly beneficial—but only if done the right way.

Otherwise, it can backfire into an unintended tax bomb. This is why it’s crucial to consult a qualified financial adviser before you engage in a Roth conversion.

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