Personal Finance
What Is a Roth Conversion, and How Does It Work?
From a brand partner: See how a Roth conversion may affect taxes, liquidity and your broader retirement plan.
For investors with $1 million or more across retirement and taxable accounts, a Roth conversion can be far more than a simple tax move.
Some investors may first hear about Roth conversions as a straightforward step: Move money from a traditional IRA into a Roth IRA, generally recognize taxable income on the taxable portion of the conversion in that year, and potentially receive qualified Roth withdrawals tax-free in the future.
For a married couple in their 50s or 60s with seven figures spread across a 401(k), a traditional IRA, a brokerage account and cash reserves, that plain description can understate what is actually being decided.
At this level, a conversion could be considered a choice about how much taxable income to intentionally recognize in a given year, and how that may interact with an already-high tax situation.
Speaking with a fiduciary financial advisor may be one way to evaluate whether that trade-off fits your broader plan.
In 2026, this could be worth reviewing, because current tax rules and income thresholds may affect whether a conversion looks more or less attractive before year-end.
Roth Conversions Are Not One-Size-Fits All
Speak with an advisor who may be able to help evaluate Roth conversion timing and coordinate a strategy based on your goals.
Why Some Affluent Households Consider Converting
For households with $1M+ in retirement and taxable assets, a well-timed conversion may offer several potential advantages.
These could potentially include the following:
- Manage future tax exposure by shifting selected pre-tax assets into a Roth structure when the timing may be favorable.
- Preserve flexibility by potentially creating tax-diversified retirement buckets for withdrawals, repositioning and legacy planning.
- Control the conversion size to help avoid unintentionally pushing household income into a less efficient tax year.
- Coordinate taxes, liquidity and portfolio risk so a conversion may fit your broader plan rather than creating a one-year tax surprise.
Where the Roth Conversion Decision Can Get Complicated
A Roth conversion from a $1M+ account isn't one-size-fits-all. The same conversion that may help one household could work against another, and the answers depend on details only you may be able to see.
Some of the questions that can be difficult to answer confidently on your own include:
- How much, if any, should a married high-income household convert this year without crossing into a materially worse marginal tax situation?
- Should conversion taxes be paid from taxable assets, cash reserves or withheld retirement funds, and what could that do to long-term compounding?
- How might a conversion interact with concentrated stock, equity compensation, bonuses, capital gains, charitable giving or business income?
- Is the goal to potentially reduce lifetime taxes, increase flexibility, improve estate transfer efficiency or hedge against future tax-rate uncertainty?
The larger the pre-tax balance, the more this may become a question of scale.
At seven figures, even about a 10% conversion of pre-tax dollars could potentially create a six-figure taxable event, which is why households at this level may approach the decision differently than those just starting out.
How the Roth Conversion Process Generally Works
Evaluating a conversion generally starts by inventorying pre-tax retirement balances, Roth assets, taxable accounts, cash reserves, expected household income and near-term liquidity needs.
From there, it may involve modeling several conversion amounts against current-year income, projected retirement income, tax brackets and planned withdrawals. A key step can be deciding how the taxes may be paid without undermining emergency reserves or investment strategy.
The timing may then need to be coordinated with tax-loss harvesting, charitable strategies, capital gains, equity compensation events and estate objectives. It can also be worth revisiting annually as income, markets and legislation shift.
That coordination cost could be one reason some investors at this asset level work with a fiduciary financial advisor.
Advisors may be able to help evaluate the timing of conversions, consider tax-efficiency implications across brackets, and coordinate a Roth strategy with broader retirement, investment and legacy goals.
The value of working with a financial advisor varies by person. While advisors generally cannot make misleading guarantees or promises of investment returns, SmartAsset’s proprietary model reveals that clients working with a financial advisor can see an estimated 36% to 212% more dollar value to investors’ portfolios over a lifetime, depending on multiple unique, individual factors.1
If you’re thinking about pursuing a Roth conversion, now may be the right time to speak with a fiduciary financial advisor.
That’s why we created a free tool to help match you with vetted financial advisors who serve your area, each legally bound to work in your best interest when working in advisory role.
It's never too late to plan to work toward a comfortable retirement. Get your financial advisor matches today.
This is a hypothetical example and is not representative of any specific security. Actual results when working with a financial advisor will vary.
This scenario is for illustrative purposes only and does not represent an actual client. Results may vary.
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Sources:
1. “The Value of a Financial Advisor: What’s It Really Worth?” SmartAsset (Nov. 2024)
