Roth Conversion Strategy

The United States offers a tax-advantaged account to its citizens called an Individual Retirement Account, or IRA. The two most popular IRAs are:

Traditional / Rollover IRA
Roth IRA

An IRA is not an investment security, an IRA is simply an investment vehicle that holds investment securities (e.g. stocks, bonds, cash, real-estate, etc.) and offers special tax treatment when money is withdrawn. IRA contributions are limited based on your current income.

U.S. income taxes are a pay me now (Roth IRA) or a pay me later (Traditional / Rollover IRA) situation. A Traditional IRA is a tax-deferred account that allows you to invest a portion of your earned income before taxes, deduct that portion from current income, and pay income taxes as ordinary income in a future tax year when funds are withdrawn.

A Roth IRA is a tax-exempt account that allows you to pay income tax on your earned income now, invest a portion of it tax-free, and withdraw the money tax-free in retirement - provided the account has been held for at least five years.

If your company has a 401k, 403b or 457b plan, these are preferable to a traditional IRA because they have higher contribution limits and generally have matching contributions, and your tax deductible contributions to a traditional IRA will be limited. When you leave a job, you will be eligible to rollover your 401k, 403b or 457b plans to a Rollover IRA in a tax free transaction.

	Traditional IRA	Roth IRA
Defer income?	yes	no
Tax on withdraw?	yes, as ordinary income	no, if qualified withdraw
Contribution Limits 2025	$7,000 under age 50, $8,000 50+ contributions must be earned income MAGI of less than $165,000 if Single or Head of Household MAGI of less than $236,000 if married filing jointly

Federal Tax Rates

The United States employs a progressive tax system, where the tax rate increases as your taxable income rises. In other words, higher income levels are taxed at higher rates. The following tax brackets are in effect for tax year 2025 based on your filing status:

Each filing status has a standard deduction which can be used to exempt the first part of your income from taxes. You can think of this as a 0% tax bracket. Taxpayers may itemize their tax return and exceed the standard deduction above if their situation warrants. You can use the tool below to see the breakdown of income into marginal tax brackets:

Total Income	Filing Status

State Tax Rates

Many individual states levy state income taxes. Some states offer a flat tax, and others offer progressive tax rates, while others have no income tax at all. This tool calculates state income taxes based on the state you select using the following tax rates and standard deductions:

Effective Tax Rate

Before analyzing this Roth conversion strategy, a discussion of effective tax rate is in order. You can calculate your effective tax rate by dividing your total tax by your total income:

Effective Tax Rate =	Total Tax Total Income

While the difference between marginal Federal tax brackets can be 2% to 10%, when we plot the effective tax rate for all filing statuses, including the standard deduction, over a wide range of incomes you will notice a smooth line of rates between 0% and 37% (the highest marginal rate) with inflections (change in slope) where marginal rates change. Note that effective tax rates map to fixed dollar amounts for your filing status and your personal effective tax rate falls on one of the lines below.

A common recommendation for Roth IRA conversions is to convert IRA money until you reach the next higher tax bracket (or inflection point). This seems like a reasonable approach if you want to make progress on your Roth conversions while minimizing the impact to your income tax for this year, however if you want to minimize your income tax over a lifetime you need to take a longer term approach.

Roth Conversion Projection

This Roth conversion tool projects the value of your IRA, Roth IRA and taxable accounts into the future based on rates of return you specify, and models the impact of a minimum effective tax rate (fixed dollar amount) on your projected Roth conversions and RMD distributions. Your results are shown below:

Roth conversions are performed to increase your income to meet your minimum tax threshold. If your minimum effective tax rate is zero, then this tool only performs Roth IRA conversions to take advantage of your standard deduction. Income taxes are paid from your available taxable account balance using the tax rates above.

To get started, simply fill in information requested below to build your Roth conversion projection. This tool allows you to change your minimum target effective tax rate to see how your projected after-tax portfolio is impacted.

Life Expectancy
Name
Birthday
Social Security start age
Monthly Social Security benefit
Annual COLA
Start RMD age
Filing Status
State
Minimum effective tax rate Target income

Enter your traditional IRA, Roth IRA and taxable account balances below along with your expected annual return on investment. If you have multiple IRA accounts, you can combine the balances. The charts display your projected account balance using this Roth conversion strategy.

You can add periodic money transfers below, including employment income or an annual 4% withdraw to your spending account.

Required Minimum Distributions

As of 2025, the IRS mandates that individuals begin taking Requires Minimum Distributions (RMDs) from their IRAs starting at age 73. For this Roth conversion tool Start RMD age above is the age at which the required minimum distribution algorithm is applied to the analysis. The RMD algorithm performs an IRA distribution of your projected IRA account balance divided by your projected life expectancy in years (as listed in the IRS life expectancy tables) into your taxable account. Performing RMD distributions at an age earlier than 73 helps spread out your taxes over multiple years which can reduce your projected taxes paid over a lifetime. If your RMD calculation is higher than your minimum effective tax rate (fixed dollar amount), then the RMD supercedes your minimum effective tax rate. Click on the summary button at the bottom of the page to see the annual numbers behind this analysis. This tool performs RMD distributions at the end of the calendar year.

Note that Roth conversions cannot be used to satisfy your required minimum distribution, and Roth IRAs do not have RMDs.

Social Security & Medicare

This tool models Social Security and Medicare taxes as well as monthly SS benefits. If you add a job as a source of income, a 6.2% Social Security tax and a 1.45% Medicare tax are withheld from your earned income. If you are self employed, these rates are doubled as you are also responsible for matching employer contributions, and self employment taxes are also assessed at tax time. As of 2025, Social Security taxes are assessed on individual income up to $176,100, and a Medicare surcharge of 0.9% is assessed on individual income exceeding $200,000.

Social Security benefits are paid starting in the month you reach the starting age you specify. SS benefits are paid on the second, third or fourth Wednesday of the month based on your date of birth. For married couples filing jointly, after death of the first spouse the surviving spouse receives the higher benefit amount of their own SS benefit or 50% of their spouse's benefit.

While this tool models different starting ages for married couples claiming Social Security, it does not attempt to maximize your SS benefits. A popular strategy for claiming Social Security is for the spouse with a lower SS benefit starts at age 62, while the spouse with a higher SS benefit starts at age 70. You can experiment with different starting ages to see how it impacts the outcome.

IRMAA

The Social Security Administration adjusts your Medicare Parts B & D premiums if your MAGI is above certain levels. This Medicare Income-Related Monthly Adjustment Amount is commonly referred to as IRMAA. IRMAA looks at your MAGI from your previous tax return to determine your premium adjustment. If you distribute your tax liability over your lifetime you can minimize the impact of IRMAA. This tool pays IRMAA premiums from your taxable account.

NIIT

A 3.8% net investment income tax (NIIT) is levied on individuals whose MAGI exceeds the following limits:

This tool pays NIIT taxes from your taxable account.

Analyzing Tax Rate Projections

Future tax rates are uncertain and may vary depending on legislative changes, and your personal financial situation affects your effective tax rate. Since you control the size of your Roth conversions, you can target your effective tax rate to a certain percentage each year regardless of tax law changes. The question then becomes:

Is there an optimal minimum effective tax rate to maximize your retirement portfolio?

The chart below displays the various outcomes of this Roth conversion strategy over a range of minimum effective tax rates using the data you provided. The projected after-tax portfolio and total tax values are based on your life expectancy.

You can view the summary of this Roth conversion strategy by clicking on the buttons below. The Roth Conversion column displays the dollar amount of Roth conversion needed each tax year to either maximize your projected after-tax portfolio or minimize your total tax paid. While this tool models many factors related to your financial situation, you should consult with a financial / tax professional for a second opionion before you take action.

Roth Conversion Analysis

Several factors influence the results of Roth conversion strategies:

Life expectancy
Traditional IRA & Taxable balances
Expected market returns
Anticipated future taxable income (job, Social Security, dividends & capital gains, lottery)
Projected future tax rates and filing status

In order to satisfy a minimum tax rate, this tool performs taxable Roth IRA conversions as necessary. While your optimal minimum effective tax rate will change based on the factors above, your recommended minimum effective tax rate seeks to put you on a course to maximize your retirement portfolio by distributing your income tax burden over multiple years. Unfortunately, no one can predict future tax rates beyond a few years and the remaining items on the list above are unknowable with any certainty. The current value of your Roth IRA does not impact this analysis because that money already meets your end goal of tax-free income in retirement.

The shape of the chart above varies widely by individual. You may choose to maximize your after-tax portfolio, or minimize your total tax paid, or choose a number somewhere in between. The more information you can provide regarding your cash flows, the better you can estimate Roth conversions to meet your goals. As you enter hypothetical cash flows, note how the shape of the chart above changes so you can determine the target range for your future Roth IRA conversions.

Rebalancing Financial Planning