What is a Roth conversion?

A Roth conversion is a strategy that moves money from a traditional pretax retirement account, such as a 401(k), into a Roth IRA, where it can grow tax-free. You pay income tax on the converted amount in the year you convert, but qualified withdrawals in retirement — and for your heirs — come out tax-free. The strategy can work best when your tax rate today is lower than the rate you’d pay in the future.

How does a Roth conversion affect Medicare premiums?

A Roth conversion increases your modified adjusted gross income (MAGI), which Medicare uses to determine whether you owe Income-Related Monthly Adjustment Amount (IRMAA) surcharges. The system looks back two years, so a conversion you do in 2026 affects your Medicare premiums in 2028. Because IRMAA uses a cliff structure, crossing a threshold by even one dollar triggers the full surcharge for both spouses for the entire year.

Should I do a Roth conversion during a low-income year?

A low-income year can be an ideal time for a Roth conversion because your tax rate is temporarily lower, letting you convert at a reduced cost. The years between retirement and required minimum distributions (RMDs) — sometimes called gap or trough years — are a common window. Before converting, model the impact on Income-Related Monthly Adjustment Amount (IRMAA), Affordable Care Act (ACA) subsidies, and Social Security taxation to help avoid triggering hidden costs.

Is a Roth conversion worth it if I buy health insurance on the ACA marketplace?

A Roth conversion can be worth it, but consider modeling the ACA subsidy cliff carefully. For 2026, the enhanced subsidies have expired, and crossing 400% of the federal poverty level by even one dollar eliminates your entire premium tax credit. A conversion that raises your modified adjusted gross income (MAGI) past that threshold can cost you thousands in lost subsidies on top of the income tax you owe.

Where can I find help building a Roth conversion strategy?

Mercer Advisors provides comprehensive planning that can coordinate a Roth conversion strategy with your full financial picture. We offer complimentary consultations so you can assess fit before committing.

How do I calculate how much to convert to a Roth IRA?

The right conversion amount depends on your total income, filing status, Income-Related Monthly Adjustment Amount (IRMAA) thresholds, Affordable Care Act (ACA) subsidy limits, and estate goals. Start by estimating your modified adjusted gross income before any conversion, then identify the nearest threshold you want to stay below. Test multiple conversion sizes — including zero — to find the amount that fills your target bracket without falling off hidden cliffs.

What’s the difference between a Roth conversion and a Roth contribution?

A Roth contribution is new money you add to a Roth IRA from your earnings, subject to annual income limits. A Roth conversion moves existing pretax savings from a traditional IRA or 401(k) into a Roth account, with no income limits on who can convert. You pay taxes on the converted amount, but the converted funds can then grow tax-free and be withdrawn without taxes in retirement.

How does a Roth conversion compare to leaving money in a traditional IRA?

Leaving money in a traditional IRA means it grows tax-deferred, but withdrawals are taxed as ordinary income and RMDs begin at age 73. A Roth conversion moves that money into a Roth account where it grows tax-free, has no RMDs during your lifetime, and passes to heirs tax-free. The trade-off is paying taxes now rather than later, which makes sense when your current rate is lower than your expected future rate.

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FAQs

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Which is better for my heirs: a Roth IRA or a traditional IRA?

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What’s the difference between a Roth conversion and a regular IRA withdrawal?

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How do I check my income-related monthly adjustment amount (IRMAA) threshold before doing a Roth conversion?

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Where can I find help with retirement tax planning and Roth conversions?

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Is it worth realizing capital gains during a low-income retirement year?

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Should I do a Roth conversion before required minimum distributions begin?

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How does a Roth conversion work during the years before required minimum distributions (RMDs)?

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What is the retirement tax gap window?

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