Here’s a number that might surprise you: for many of our clients at the Delaware and Maryland beaches, properly timed Roth IRA conversions save hundreds of thousands of dollars in lifetime taxes. Not through complicated schemes or aggressive or overly complex strategies just by paying tax at the right rate, at the right time, on the right dollars. The problem is that Roth conversions are one of the most misunderstood tools in retirement planning. Some people convert too aggressively and erase the tax savings they spent decades accumulating. Others ignore them entirely and leave real money on the table. The goal of this post is to help you figure out which side of that line you’re on.

Key Takeaways

• Partial Roth IRA conversions are an irrevocable decision – no undoing it!
• The tax equivalency principle is what matters – are your taxes likely to be higher later?
• You’ve probably already saved a lot in taxes by deferring your income in the first place!

The Basics of Roth IRA Rules

Most people are familiar with the biggest benefit of the Roth IRA – tax-free growth on after-tax dollars. You can also thank Senator William Roth from Delaware for the great benefit that still bears his name.

Roth IRAs are funded with after-tax dollars and contributions are limited to certain income phaseouts. If you are over the income phaseout, you can still fund a Roth IRA via a backdoor Roth IRA contribution or mega backdoor Roth IRA contribution. Those aren’t the focus of this blog, but it’s worth understanding the basics of what it takes to fund a Roth via contributions.

The second way to fund a Roth IRA is via a conversion. So, if you have money in a Traditional IRA or have deferrals in a pre-tax 401(k), a Roth IRA conversion is an opportunity to pay tax on those dollars and move them into a Roth where the Roth IRA rules apply.

While a contribution is limited to $7,000 per year (2026 dollars), there is no limit on a conversion. So, if you had an IRA worth $1,000,000, you could convert it all in one year to a Roth! Now, don’t do that. You’d pay tax on all $1,000,000 in one tax year, immediately moving you into the top 1% of American income earners for that year. It’s called a partial Roth IRA conversion for a reason. Spreading it out over several years is what makes it an effective strategy.

There are two important 5-year rules to understand:

• The account rule (applies to everyone): A Roth IRA must be open and funded for at least five years before any gains are tax-free. This is why it makes sense to open a Roth IRA early, even with a small contribution just to start the clock.
• The conversion rule (under age 59½ only): If you convert IRA dollars before age 59½, each individual conversion starts its own 5-year clock before those converted dollars can be withdrawn tax-free. Once you’re over 59½, this rule disappears entirely only the account-level rule applies. For most of our clients who are retired, this rule is a moot point.

The Tax Equivalency Principle

The tax equivalency principle says that if your tax rate today is the same as it will be in the future, you will end up with the same after-tax balance whether you contributed to a Traditional IRA or a Roth. This is the foundational concept for understanding when a conversion makes sense. Going back to grade school, this is the transitive property in mathematics.

Let’s take a $7,000 contribution. When you contribute to a Roth IRA, you’re funding it with after-tax dollars. To make it an apples-to-apples comparison, we apply a 25% tax rate to the $7,000, that leaves you with $5,250 to contribute. Using a 7% growth rate over 30 years, that $5,250 grows to $39,964. Totally tax-free. Remember, when you contribute to a Roth you aren’t reducing or affecting your tax bill today. So the same $7,000 you save into a traditional IRA only “costs” you $5,250.

Now let’s say you contribute $7,000 to a Traditional IRA instead. The deduction saves you tax up front, but you’ll pay it upon withdrawal. Same 7% growth rate, same 30 years, you end up with $53,285. Apply 25% tax upon withdrawal and you’re left with $39,964.

Same number. That’s the whole point. The determining factor isn’t the growth rate it’s the tax rate. That’s a huge misconception. If your rate today is the same as your rate later, it doesn’t matter which account you use. The opportunity for a Roth conversion emerges when your rate now is lower than your rate will be in the future. I’ll caveat this to say if you are using asset location the growth rate between accounts will be different. Though that is a feature, not a bug, and also is a great way of reducing lifetime taxes. Again, we’ll write more about that down the road. Comparison of $7,000 to be contributed below:

	Roth IRA	Traditional IRA
Contribution	$5,250 (after-tax)	$7,000 (pre-tax)
Growth (7%, 30 yrs)	$39,964	$53,285
Tax on withdrawal (25%)	$0	($13,321)
After-tax balance	$39,964	$39,964

You’ve Probably Already Won the War

Before going further, it’s worth acknowledging something that often gets lost in the Roth conversion conversation: if you’ve been diligently contributing to a pre-tax retirement account for decades, you’ve probably already made a smart tax decision and “won the tax war”.

With progressive tax rates, every dollar you deferred went in at your highest marginal rate — 35%, 32%, whatever the top of your bracket was. In retirement, the opposite happens. You’re filling the brackets from the bottom up. Your first dollars of withdrawal are taxed at 10%, then 12%, then 22%. To pay an effective rate of 35% on pre-tax withdrawals in retirement, you’d need to pull roughly $800,000 in a single year. For most retirees, the effective rate on IRA withdrawals ends up in the teens. When your comparing tax savings during your accumulation years, your comparing your marginal rate today vs. your effective rate in retirement. Most people are thinking about their marginal rate now vs. their marginal rate in the future. Again, a common misconception and can cause accumulators to pay a higher lifetime tax bill than they should.

The hypothetical savings from deferring at 35% and withdrawing at an effective 15% is 20 percentage points — as good as a meaningful market return, expressed as a tax benefit. That’s the baseline. Roth conversions are an enhancement on top of an already-winning strategy, not a replacement for it. Can you get farther ahead utilizing your retirement years? Absolutely.

So When Does a Roth IRA Conversion Make Sense?

We’re looking for a tax differential — a point in the future where your tax rate will be meaningfully higher than it is today. Here are the most common triggers for our clients:

• Required Minimum Distributions kicking in at age 73
• Death of a spouse, triggering single filer tax rates
• Receiving an inherited IRA subject to the 10-year distribution rule
• Passing pre-tax retirement assets to heirs who will face the 10-year rule at their (likely higher) income tax rates

Let’s look at these individually:

The Low-Income Window: Your Best Conversion Opportunity

One of the most overlooked and most powerful Roth conversion opportunities is the gap between when you retire and when RMDs and Social Security income begin. For many of our clients, this window falls roughly between ages 62 and 73. During this stretch, taxable income can drop dramatically. No paycheck, no RMDs yet, and potentially no Social Security if you’ve delayed filing. You may find yourself temporarily sitting in the 12% or 22% bracket despite having a multi-million dollar portfolio.

That’s the sweet spot. Converting in that window filling up to the top of the 12% bracket, for example locks in a low rate before RMDs start stacking income on top of Social Security and potentially pushing you into 24% or higher. For our typical coastal Delaware and Maryland clients, this is where the most meaningful and common Roth conversion work gets done.

RMDs begin at age 73 (we wrote an entire blog on RMDs you can read here). For those who haven’t been drawing down their pre-tax accounts, the mandatory withdrawal floor suddenly appears, and it rises every year. Is it possible an RMD could push you into a higher marginal bracket? Absolutely. Would it be worthwhile to convert some dollars at 12% today if you know a portion of future RMDs will be taxed at 22%? Yes, that 10-point differential is real, compounding savings for your family.

Death of a Spouse

Upon the death of a spouse, you lose the ability to file as Married Filing Jointly. Income brackets compress, deductions shrink, and tax bills can rise significantly. The “widower’s penalty” isn’t as severe as it once was, but if RMDs remain the same while the filing status changes, it can meaningfully increase the marginal rate on certain withdrawals. Pre-converting dollars while both spouses are alive and while MFJ rates apply is a planning opportunity that’s easy to underestimate. The more pronounced the age gap between spouses, the bigger the opportunity here.

Inherited IRAs

It isn’t uncommon for our clients to inherit IRA funds at or near retirement age. The SECURE Act eliminated the “stretch IRA” for most non-spouse beneficiaries, now those accounts must be emptied within 10 years. Stack that forced distribution on top of your own RMDs and it can become a punitive inheritance. Factoring this into your conversion analysis is worthwhile (though I always say: never count on an inheritance).

Leaving Assets to Your Children

Some clients remind me that their children are lucky to be getting anything at all — and that’s a perfectly valid retirement philosophy. But for clients with lower spending rates who are likely to pass significant pre-tax balances to heirs, the math is worth running. Your children will also face the 10-year rule, and if they’re in their peak earning years, those distributions will be stacked on top of their own employment income, almost certainly at a higher rate than you’d pay today. Paying the tax now, at a lower rate, leaves more in the family and less going to the government.

Things That Can Limit Conversions

While the math above is straightforward, the U.S. tax code is not. With the passage of the OBBBA (read more about that here) and various deductions like the enhanced senior deduction, numerous phaseouts can create effective marginal rates higher than the stated bracket rate. Converting to the “22% bracket” may incur a tax liability well above 22% when phaseouts and IRMAA surcharge thresholds are factored in. Our tax planning blogs cover this in detail, but it’s an important reason to model carefully before converting. It’s also a reason that we run a pro-forma type projection at the end of each year to dial in our conversions to specifically avoid these phaseouts/landmines that apply uniquely to each client.

Overly aggressive conversions can also backfire. If you’ve been deferring at a high rate for decades, converting too aggressively in retirement erodes the original tax savings. You need to look in the rearview mirror as much as through the windshield. Reducing your lifetime tax bill means accounting for what you’ve already saved, not just what you might save going forward. I often see the lure of “tax free” monies here ironically end up paying more money to the government. It’s something many practitioners are guilty of as well.

Finally, remember that the decision is irrevocable. I generally recommend doing conversions toward the end of the tax year when you have a complete picture of your income and deductions for that year. Precision matters here, converting at too high an effective marginal rate can significantly erode lifetime tax savings.

In Conclusion

The tax savings from properly executed Roth IRA conversions can be significant. For our typical clients at the Maryland and Delaware beaches with $2–$5 million in liquid investments, the lifetime tax savings can run into the hundreds of thousands of dollars, saving real money that compounds in your family’s favor.

But the opposite is equally true. Not fully understanding when conversions are appropriate or going too aggressive too fast can cost just as much. If you’re interested in figuring out whether you’re on the right track with Roth conversions, you can reach out to us here.