Roth IRA Conversion: “Are They Right for Me?” (Year-End Edition)
By Brian Wheeler
As we head into Q4, many families review whether converting some pre-tax dollars to a Roth IRA makes sense.
A Roth conversion trades a tax bill today for the potential of tax-free growth and tax-free withdrawals later, plus fewer forced withdrawals in retirement. With several tax rules shifting in recent years—and more changes possible in 2026—year-end is a smart time to run the numbers.
Quick primer (what to know in 90 seconds)
- What it is. You move money from a pre-tax IRA/plan into a Roth IRA. The converted amount is taxable in the year you convert. To count for 2025, complete the conversion by December 31 (custodians often have earlier cutoffs).
- No “undo” button. Since 2018, Roth conversions can’t be recharacterized (no reversing later). Plan carefully.
- RMD relief. Roth IRAs have no RMDs during your lifetime, and starting 2024, Roth 401(k)/403(b) accounts also avoid RMDs while you’re alive.
- Pro-rata rule. If you have any basis (nondeductible contributions) in your traditional IRAs, the taxable portion of a conversion is prorated across all IRAs, and you’ll report it on Form 8606.
- Avoid accidental penalties. Do the conversion directly (trustee-to-trustee) and don’t withhold taxes from the IRA; any amount withheld and not rolled over is treated as a distribution and may face the 10% early-withdrawal tax if you’re under 59½.
- Medicare watch-out. Conversions increase MAGI, which can push some retirees into IRMAA premium surcharges two years later—plan your amounts to avoid those cliffs.
When a conversion often helps
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You expect higher tax rates later (personal or potential 2026 changes), or you want tax diversification.
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You’re in “gap years” (early retirement before Social Security/RMDs) with unusually low income.
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You’d like to reduce future RMDs on pre-tax accounts and potentially leave tax-free assets to heirs.
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You have cash outside your IRA to pay the tax bill (so the full amount keeps compounding tax-free).
When to tap the brakes
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A conversion would jump you into a much higher marginal bracket this year.
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You’re near an IRMAA threshold, ACA subsidy cliff, or other income-sensitive phase-out.
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You’d need to withhold taxes from the IRA or spend converted funds within 5 years (the 5-year/ordering rules can trigger taxes/penalties on certain early withdrawals).
A simple, smart process
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Bracket map: Decide how much room you have left in your target tax bracket for 2025.
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Model IRMAA & state taxes: Watch income cliffs and the 2-year Medicare look-back.
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Convert directly & fund taxes from cash: Do a direct transfer and cover taxes outside the IRA.
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Document basis: If you’ve ever made nondeductible IRA contributions, file Form 8606.
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Remember: no recharacterizations. Double-check before year-end.
Curious whether a Roth conversion fits your plan this year?
Schedule a 30-minute conversation with a Keystone Wealth Advisor (and, as needed, we can loop in a CPA). We’ll help you right-size the conversion, avoid surprise taxes/IRMAA, and build a multi-year strategy for maximum tax efficiency and long-term tax-free growth. Better together.