Roth Conversion Planning

A conversion is not the same as a regular Roth contribution. Previously untaxed amounts generally enter your income for the conversion year; any after-tax basis must be accounted for under the IRA tax rules.

Compare the conversion with your other income, deductions and cash needs. A conversion can increase the current tax bill even when it is part of a strategy designed to manage taxes over a longer retirement.

Federal income tax uses graduated brackets. Partial conversions in different tax years can be considered rather than moving an entire balance at once.

A schedule may help manage how much additional income falls into a higher bracket, depending on your situation. It should be revisited as income and law change rather than treated as a prediction of future savings.

For a Roth IRA distribution to be qualified, the five-tax-year period beginning with the first tax year of a contribution to a Roth IRA for your benefit generally must be met, along with age 59½ or another qualifying condition.

A different five-year period applies to each conversion for certain early-distribution additional taxes. That clock begins with the conversion tax year. Age and exceptions matter; satisfying one clock does not automatically satisfy the other.

The original Roth IRA owner does not have lifetime required minimum distributions from that Roth IRA. Beneficiaries have separate rules after the owner's death.

Do not assume moving money to a Roth eliminates inherited-account deadlines or makes every withdrawal a qualified distribution.

Taxable conversion income can affect the income calculations used for Social Security benefit taxation and Medicare income-related premium adjustments, known as IRMAA.

SSA normally looks at tax-return income from two years before the Medicare premium year. Looking at these interactions together may be more useful than considering the conversion's tax bracket alone.