A Roth conversion can create more flexibility in retirement, but it can also add to your tax bill today. Whether it makes sense depends on your income, your savings, and when you expect to use the money.
October is a useful time to explore the question. You have much of the year’s income information available, along with time to review projections and coordinate with your retirement account provider before year-end.
For individuals and couples in North and South Carolina, the best starting point is a tax projection that compares several options.
What a Roth conversion actually does
A Roth conversion moves money from a traditional IRA into a Roth IRA. The taxable portion generally becomes ordinary income for the conversion year. If the traditional IRA contains only pre-tax money, the full amount converted is generally taxable. After-tax IRA contributions require additional calculations. [2]
In exchange for paying tax now, you may receive qualified tax-free withdrawals later. Roth IRAs also have no required minimum distributions during the original owner’s lifetime. Withdrawal rules still apply, including five-year requirements and possible penalties for early access. [3]
For example, converting $30,000 of entirely pre-tax IRA money generally adds $30,000 to income. It does not mean you owe $30,000 in tax. The actual tax cost depends on your return, including other income, deductions, and applicable tax rates.
When a conversion may deserve a closer look
A year with temporarily lower income can be a useful opportunity to evaluate a conversion. Perhaps you retired recently, reduced your working hours, or had a slower business year. Paying tax on some retirement savings now may be attractive if you expect those dollars to face a higher tax rate when withdrawn later.
Having cash outside the retirement account to cover the tax bill also matters. A conversion becomes harder to justify if paying the tax would leave you short of emergency savings or money needed for everyday expenses.
You can evaluate a partial conversion rather than moving the entire account. Comparing a smaller conversion, a larger conversion, and no conversion can show how each choice affects your finances.
Look beyond the income tax bracket
Extra income can affect more than the tax on the converted dollars. For Medicare beneficiaries, higher income may increase Part B and prescription drug premiums, generally using income from two years earlier. A conversion in 2026 could therefore affect premiums in 2028. [4]
Ask your tax professional to review other income-sensitive items on your return as well. The goal is to understand the total cost before deciding how much to convert.
For Carolina residents, include state taxes in that comparison. Tell your tax professional if you moved between North and South Carolina during the year or expect to relocate in retirement. Where you live now and where you expect to withdraw the money are relevant planning details.
Plan the payment and timing before moving money
A conversion may require an estimated tax payment or an adjustment to withholding. Include that payment in the plan rather than assuming you can wait until you file.
If you want a direct conversion completed in 2026, coordinate with your account provider well before December 31 and confirm its processing deadlines. Do not assume the spring deadline for regular IRA contributions also lets you complete a conversion for the previous year.
Start with a personalized tax projection
Before your appointment, gather your latest retirement account statements, prior-year tax return, current income information, and details of any after-tax IRA contributions. Include expected bonuses, investment sales, and other income still to come this year.
At Island Tides Accounting, we can help evaluate the tax implications of a potential Roth conversion and coordinate the tax analysis with your financial advisor. The right decision should fit both your current cash needs and your longer-term retirement plans. Contact our team today.