What Is a Roth Conversion — and When to Consider One

A Roth conversion converts traditional IRA or 401(k)assets to Roth IRA assets. You pay income tax now on the amount converted, and then all future growth and withdrawals are tax-free, assuming you follow the rules.

Why Do Roth Conversions Before Retirement?

Use up lower federal tax brackets

If you’re in a lower tax bracket now—especially the 10% or 12% brackets—you can convert money and pay tax at that lower rate instead of higher rates later when your income increases. Conversions in higher brackets may also make sense, depending on your situation.

Note The 5-Year Rule for Roth Conversions

Each Roth conversion has its own 5-year clock for penalty purposes. If you withdraw converted amounts within 5 years and you are under 59 1/2, a 10% penalty may apply. Earnings are tax-free only if the Roth IRA itself has satisfied the 5-year age requirement and a qualifying event applies.

Benefits of Converting After Retiring

Even in retirement, a Roth conversion can be helpful:

1. Keeps future taxable income lower: Converting just enough to “top out” a lower bracket (including your standard deduction) lets you pay taxes at a modest rate, leaving your traditional IRA intact while getting money into a tax-free account for future withdrawals or beneficiaries.

2. Offsets mandatory withdrawals: At age 73, you must take Required Minimum Distributions (RMDs) from traditional accounts. Converting ahead of time reduces the balance subject to future RMDs, helping manage tax and income planning if your RMDs are likely to exceed your income needs.

3. Takes advantage of your standard deduction: A married couple where both spouses are over 65 and meet income limits may qualify for a total standard deduction of up to $47,500 in 2026 when including the One Big Beautiful Bill Act (OBBBA)bonus standard deduction. That means your first $47,500 of

taxable income each year could be tax-free anyway. Conversions that keep income near this range may make sense for you.

4. Can preserve retirement assets by using taxable funds to cover tax: In some scenarios, it may make sense to use non-qualified assets like built up cash or other non-IRA investments to pay any tax liability created by a Roth conversion. This can help ensure qualified (IRA) assets are not used to pay taxes, improving the funds in qualified (IRA & Roth IRA) accounts.

Illinois-Specific Consideration: Property Tax Freeze

IL retirees aged 65+ may qualify for a property tax freeze based on net income below $75,000. A Roth conversion is included in “net Illinois income” once completed.

o Before conversion: Withdrawals or RMDs count against your net income.

o During conversion: The amount converted counts toward your household income and may cause you to be disqualified from the freeze for the year of conversion if too large.

o After conversion: Roth distributions aren’t income, and the conversion itself isn’t counted in future income once paid.

o Result: You pay taxes now but protect eligibility for property tax relief in years ahead.

o Note: Many states offer similar senior property tax programs; consult with your financial advisor and tax planner on how a conversion might affect you.

Planning for Your Heirs

o A Roth can be a powerful estate-planning tool:

Tax-free inheritance: Your children receive Roth distributions without tax, even after you’re gone.

No annual RMDs for heirs: Heirs have more flexibility when they withdraw funds from an inherited Roth IRA compared to an inherited IRA.

Charity comparisons: If leaving assets to charity is a possibility, a Roth conversion might not help as much; charities generally don’t pay taxes, so converting may offer less benefit.

Keep an Eye On

Future tax rate changes: Congress can adjust tax brackets, so watch for changes.

Timing: Converting in years with low income (e.g., early retirement before large distributions or pensions begin) can be ideal.

Illinois rules: Stay under the net income limit if you rely on the property tax freeze.

Moving out of state: If you plan on changing states in retirement, particularly from one that does not tax traditional IRA withdrawals (like Illinois) to one that does, Roth conversions can ensure you will not pay state tax on qualified withdrawals in your new home state.

Other income factors: Conversions impact Medicare premiums, Social Security taxable income, and more. Coordinate with a knowledgeable financial advisor.

Bottom Line

A Roth conversion means paying tax now to gain tax-free growth & withdrawals later.

It lets you lock in lower tax rates, improve standard deductions, and manage future required minimum distributions.

In IL, it can help maintain eligibility for property tax relief down the road if facing large RMDs.

For families, it can offer smoother estate transfers with fewer tax hoops for your heirs.

Unsure if Roth Conversions makes sense for you? Reach out to us today for a tailored financial plan. We are here to help you make good life decisions for your financial future.