Should You Consider a Roth Conversion This Year?

Each fall, many investors revisit the same question: “Should I convert a portion of my traditional IRA to a Roth IRA before December 31?”

In prior years, the general response was relatively simple: A conversion may be worth considering when you are in a lower tax bracket than you expect to be in the future.

That basic principle still applies. Although the One Big Beautiful Bill Act (OBBBA) did not create a new federal Roth conversion rule, its changes to individual tax rates, deductions, and other provisions could affect the tax cost and timing of a conversion. Taxpayers should therefore reassess whether a conversion would make sense in 2026 and, if so, how much to convert before year end.

A Roth conversion exchanges the current tax cost for the potential benefit of tax-free qualified withdrawals later. Funds move from a traditional IRA, or from an eligible employer retirement plan when permitted, into a Roth IRA, and the taxable portion of the converted amount is generally included in ordinary income for the year of conversion. The original account owner generally is not required to take required minimum distributions from the Roth IRA.

There’s no single factor to determine whether a Roth conversion is appropriate. The decision depends on your current and expected future tax rates, the amount converted, the source of funds used to pay the tax, and how the conversion fits into your overall retirement and estate plan.

When a Roth Conversion May Be Worth Considering

A Roth conversion may be worth considering when your current taxable income is temporarily lower than usual, such as during a career transition or in the years after retirement but before required minimum distributions begin. Converting during a lower-income year may allow some of the conversion to be taxed at a lower marginal rate than might apply in future years. The potential benefit depends on the size of the conversion and how the additional income interacts with deductions, credits, and other tax items.

A conversion may also be attractive if you expect your future tax rate to be the same or higher, hold a substantial amount of pretax retirement savings, or want to reduce the amount that may later be subject to required minimum distributions. Having sufficient non-retirement funds available to pay the tax generally strengthens the case because more of the converted amount can remain invested. A decline in investment values may also create an opportunity to convert more shares at a lower current tax cost, while estate-planning goals may favor leaving your loved ones Roth assets that generally can be withdrawn income-tax-free if applicable requirements are met.

The same facts that support a conversion in one situation may weigh against it in another. Before acting, it is equally important to consider the circumstances that can increase the current cost, reduce the expected long-term benefit, or create pressure on near-term cash flow.

When a Roth Conversion May Be Less Attractive

A Roth conversion may be less attractive if you expect to be in a meaningfully lower tax bracket when the funds would otherwise be withdrawn. In that situation, converting now could cause you to pay tax at a higher rate than you might pay later. The comparison should account for more than the stated tax brackets, however, because deductions, credits, Medicare income-related surcharges, taxation of Social Security benefits, and other income-sensitive provisions can change the effective cost of a conversion.

A conversion may also be less appealing if you would need to use retirement funds to pay the tax, expect to need the converted assets in the near term, or cannot comfortably absorb the effect of the additional taxable income on your cash flow and broader financial plan. The decision does not have to be all or nothing. Modeling several partial-conversion amounts can help identify whether a smaller conversion would capture some long-term benefit while limiting the immediate tax cost and other unintended consequences.

Because a conversion must be completed by December 31 to count for 2026, and because it cannot be reversed once made, the best time to evaluate your options is well before year end. A thoughtful review can help determine whether a conversion makes sense for you this year, how much to convert, and how to pay the resulting tax without creating unintended consequences elsewhere in your plan.

 Mistakes That Cost Money

The most common mistakes we see people make when deciding whether to convert are often unintentional missteps caused by factors that appear straightforward at first glance. With a modest amount of planning ahead of time, you can significantly reduce the risk of an unintended outcome, such as those illustrated in the examples below.

• Converting a round number instead of a calculated one is the most frequent mistake. Choosing to convert $100,000 simply because it is a clean figure can push you into a higher bracket, raise your Medicare premiums two years from now, and increase the taxable portion of Social Security this year. The goal is the most efficient conversion, not the biggest one.
• Attempting to convert a Required Minimum Distribution is a misunderstanding of the rules. RMDs cannot be converted. You must take the full RMD first, then convert from whatever remains.
• Forgetting quarterly estimated tax payments is an easy oversight with real consequences. A large conversion can produce a substantial tax liability mid-year. Plan for additional withholding or an estimated payment due January 15, 2027 to avoid underpayment penalties.
• Waiting until the final week of December is very risky, operationally speaking. Custodians become busy at year end, and processing delays can push a conversion into the following tax year. Mid November is a safer target to initiate the process.
• Looking at only one year can lead to unnecessary taxes. In many cases, spreading conversions across multiple years is more tax efficient.
• Assuming the decision can be reversed later is a costly misconception. A Roth conversion cannot be undone. Model your options carefully and thoroughly before the conversion is placed.

If you would like us to model a few conversion scenarios based on your income, retirement savings, and long-term goals, please reach out to schedule a conversation before mid-November so there is ample time to plan and act before the deadline.

Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.

Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.