Timing the Tax Shift: When Professionals Should Consider a Roth Conversion
By Stuart Canzeri, Founder of Peachtree Financial
Few financial strategies generate more debate and hesitation than the Roth conversion. For professionals in their highest-earning years, the idea of voluntarily triggering a tax bill can seem counterintuitive. Still, in the right situation, this move can dramatically improve future retirement flexibility, reduce taxes over time, and strengthen the legacy left behind.
A Roth conversion is not just a technical maneuver. It is a strategic decision that works best when timed with care. For professionals navigating career growth, family responsibilities, and long-term wealth planning, knowing when to convert can be just as important as understanding why.
This is not a universal solution for every household. It is a powerful tool that must be used thoughtfully. The benefits are real. The timing is everything.
What a Roth Conversion Actually Accomplishes
At its core, a Roth conversion shifts assets from a tax-deferred retirement account, such as a traditional IRA or 401(k), into a Roth IRA. This move creates a taxable event in the year of the conversion. In exchange, the converted dollars grow tax-free and are not subject to required minimum distributions later in retirement.
Think of it as choosing to pay taxes on the seed instead of the harvest. Once inside a Roth IRA, qualified withdrawals are not taxed. Neither is the future growth. That can be a significant advantage over time, especially if tax rates increase or retirement spending stays high.
This strategy provides greater flexibility in managing taxable income in retirement and often supports more efficient wealth transfer to heirs.
Why Timing Matters
The Roth conversion discussion is not just about tax brackets. It is about aligning the conversion with your overall financial picture. Done at the wrong time, a conversion can create unnecessary tax pressure. Done strategically, it can help reduce future tax liabilities and give you greater control over your income.
The most effective conversions often happen during transitional years. These windows are easy to miss if you are not planning ahead.
When Professionals Should Consider a Roth Conversion
Several specific scenarios present ideal opportunities for conversions. These are often overlooked because they do not always appear obvious in real time.
A Year with Lower Income
Some of the best Roth conversion opportunities occur during years with lower taxable income. This might happen during a career break, a job transition, or after selling a business. Even early retirement years before Social Security or pension income begins can create space for conversions.
In these periods, your marginal tax rate may be lower than usual. That gives you more room to convert retirement assets without jumping into a higher bracket.
Small conversions during these years can accumulate into meaningful tax savings. It is important to run the numbers carefully and look at the long-term picture, not just the current return.
The Gap Years Before Required Distributions Begin
Many professionals retire in their sixties but are not required to begin taking distributions from pre-tax accounts until age 73 or 75, depending on birth year. This creates a multi-year window with more control over income.
These are prime years for partial Roth conversions. Distributions from traditional accounts are not yet required. Income may be lower. The opportunity to fill lower tax brackets with converted dollars can be one of the most tax-efficient strategies available.
In this window, every year of conversion reduces the size of future required distributions. That keeps more money under your control and less subject to government formulas and forced withdrawals.
A Down Market
When markets are temporarily down, the value of your pre-tax assets may be lower. Converting while values are reduced allows you to pay taxes on a smaller amount. Once those investments recover inside the Roth IRA, future gains will not be taxed again.
This is not about market timing. It is about recognizing that temporary declines can present long-term planning opportunities. Converting during a dip, especially for long-term growth assets, can be a smart way to maximize future value.
Estate Planning and Wealth Transfer
A Roth IRA can be a better legacy tool than a traditional IRA. It does not carry required minimum distributions. It passes income tax-free to heirs. It gives beneficiaries more flexibility over timing.
With new rules requiring most non-spouse beneficiaries to distribute inherited IRAs within ten years, the Roth structure creates a clear advantage. Heirs will not be pushed into higher tax brackets and are not taxed on the distributions.
For clients focused on long-term legacy planning, this can be a compelling reason to begin converting strategically during high-earning or early retirement years.
What to Watch For
As with all financial planning decisions, the benefits of Roth conversions depend on how they are implemented. Several common pitfalls can erode the value of the strategy.
Converting Too Much at Once
Large, single-year conversions can create unintended consequences. These include Medicare surcharges, increased capital gains tax exposure, or triggering the net investment income tax. It is often more effective to spread conversions over multiple years and monitor your total taxable income carefully.
Not Having Cash to Pay the Tax
Using converted assets to pay the tax bill reduces the amount that ends up inside the Roth. That defeats much of the purpose. Ideally, taxes should be paid from outside the retirement account. This preserves the full value of the converted dollars and keeps them working for your future.
Ignoring Medicare Thresholds
For those nearing age 65, income levels impact your Medicare Part B and D premiums. Roth conversions increase your modified adjusted gross income and can trigger higher premiums two years later. These costs should be part of the analysis when deciding how much to convert in any given year.
Missing the Planning Window
Once you reach age 73, required minimum distributions must be taken before any conversions can occur. That reduces flexibility. Waiting too long can limit your options and increase your overall tax burden in retirement.
How a Financial Advisor Can Help
This is not a decision to make in a vacuum. It requires coordination between your tax strategy, your investment portfolio, and your long-term retirement plan.
At Peachtree Financial, we help clients evaluate Roth conversions in the context of their full financial picture. We work alongside your CPA to:
- Project your current and future tax brackets
- Identify ideal conversion amounts for each year.
- Model the long-term benefit to your net retirement income.
- Optimize conversions alongside charitable giving or business income changes.
We are not here to guess. We are here to help you understand the tradeoffs and make informed choices based on your personal goals.
The Emotional Side of This Strategy
Even when the numbers make sense, many people pause before converting. Paying taxes now, especially when it feels optional, can feel uncomfortable. That hesitation is understandable.
This is where reframing helps. A Roth conversion is not a penalty. It is a proactive step to gain more control over your money. It is an investment in future tax-free income. It is a way to reduce the IRS’s role in your retirement years.
That perspective shift can make all the difference. Especially when paired with a clear, strategic plan.
Is This the Year for You?
There is no perfect Roth conversion strategy. There is only a personalized one.
If this year includes a dip in income, a change in employment, an early retirement window, or simply a desire to improve future flexibility, now may be the time to explore this approach.
The earlier the planning starts, the more choices you have. Conversions are not about chasing returns or fearing tax hikes. They are about preparing your financial life to be more efficient, more flexible, and more aligned with your goals.
We are here to guide the conversation and help you explore what is right for your situation. If the Roth conversion door is open for you this year, let’s evaluate it together – thoughtfully, professionally, and with your long-term vision in mind.