Roth Conversion Tax Cost: How Much Should You Convert?

By Tom, CPA · Updated October 25, 2026

TL;DR: Convert when the tax rate you pay now is lower than the rate the money would face later. For many early retirees that means filling the 10% and 12% brackets: up to $133,000 of income for a married couple in 2026 (with the standard deduction). Pay the tax from a taxable account, and check ACA subsidies, IRMAA and the stacking effect on capital gains.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Paying tax early on purpose sounds deranged until you see the math. A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay income tax on the converted amount now, and in exchange the money grows tax-free and has no required minimum distributions during your lifetime.

The hard part is not how to convert; it is how much. This guide walks through the reasoning, using 2026 brackets from IRS Rev. Proc. 2025-32.

CPA Warning Label: Conversions cannot be undone. Since 2018, recharacterization of a conversion is not allowed. Convert late in the year when your income is known.

Marginal rate today vs later

The core comparison is simple: the marginal rate on the conversion today versus the marginal rate the same dollars would face when withdrawn later, either by you, your surviving spouse or your heirs.

Today's marginal rate is not just the bracket rate. It includes:

• The ordinary bracket (10%, 12%, 22% and up).
• State income tax.
• Capital gains pushed from 0% into 15% by the extra ordinary income (see stacking rules).
• Lost ACA premium tax credits.
• IRMAA two years later if you are 63 or older.
• Extra taxable Social Security if you are already collecting.

The future rate is a guess, informed by the size of your pre-tax balance, your expected RMDs, Social Security, whether you are married, the tax rates of likely heirs, and future law. A large pre-tax balance tends to mean a higher future rate.

Conversion sizing methods

1. Fill to the top of a bracket. The most common method. In 2026, a married couple with no other income and the $32,200 standard deduction can recognize $133,000 of ordinary income to fill through the 12% bracket (taxable income $100,800, federal tax $11,600). A single filer can recognize $66,500 ($50,400 + $16,100), for federal tax of $5,800.

2. Fill to a subsidy or IRMAA line. Stop at a specific MAGI to protect a premium tax credit or avoid a Medicare surcharge tier.

3. Level the lifetime rate. Model future RMDs and convert enough each year that your tax rate is roughly constant across retirement. This is the most precise method and needs a projection.

4. Convert in market dips. Converting when prices are down moves more shares for the same tax.

The Roth conversion calculator shows bracket room and tax cost for a given income.

Paying the tax from taxable

Paying conversion tax from a taxable account rather than from the IRA is usually better. If you withhold tax from the conversion, less money reaches the Roth, and for someone under 59½ the withheld amount is treated as a distribution that may face the 10% additional tax. Paying from taxable money effectively moves extra dollars into the tax-free bucket.

Illustration. Assumptions: $50,000 conversion, 12% bracket, $6,000 of tax. If the tax is withheld from the conversion, $44,000 lands in the Roth. If it is paid from a brokerage account, $50,000 lands in the Roth and the brokerage account shrinks by $6,000. At the same growth rate, the second approach ends with more after-tax wealth, because the Roth dollars grow without tax drag.

Conversions and ACA subsidies

Conversions count fully in MAGI for marketplace premium tax credits. As of Oct 2026, the enhanced credits that applied from 2021 through 2025 have expired, and income above 400% of the federal poverty level gets no credit. For 2026 coverage, that limit is $62,600 for a household of one and $84,600 for a household of two (CMS). Crossing it can cost thousands of dollars of credit, which is an extra marginal tax on the conversion dollars that pushed you over.

For early retirees on marketplace coverage, the choice is often between a modest conversion that keeps the credit and a large one that gives it up. The answer depends on the credit size and the pre-tax balance.

Five-year rule recap

Each conversion has its own five-year clock, starting January 1 of the year of conversion. If you take a distribution of converted amounts before the clock ends and you are under 59½, the taxable part of that conversion may face the 10% additional tax (IRS Publication 590-B). After 59½, the conversion clocks no longer matter for the penalty. This is the engine of the Roth conversion ladder.

A separate five-year rule applies to whether earnings come out tax-free; it is measured from your first Roth IRA contribution or conversion.

Worked example

Illustration. Assumptions: married couple, both 58, filing jointly, 2026. Other income: $20,000 of interest and non-qualified dividends. No capital gains. Traditional IRA $1.2 million. Bought their own health coverage without subsidies.

• Fill to top of 12%: conversion of $113,000 (total ordinary income $133,000). Taxable income $100,800, federal tax $11,600. Conversion cost: $11,600 minus the $0 they would otherwise owe (their $20,000 of income is under the standard deduction), or about 10.3% average.
• Fill to top of 22%: conversion of $223,600 (total ordinary income $243,600, taxable income $211,400). Federal tax: $35,932. The extra $110,600 of conversion costs 22%.

If they expect RMDs to keep them in the 22% bracket or higher in their 70s and 80s, filling 22% now is roughly break-even, with the benefit of no RMDs on the Roth and a better outcome for a surviving spouse. Filling 12% is a clear win if they expect 22% later.

Single filers and the math of one

Illustration. Assumptions: single filer, age 55, 2026, no other income, $700,000 traditional IRA, buying unsubsidized marketplace coverage.

• Fill to the deduction only: $16,100 conversion, $0 federal tax.
• Fill 10%: $28,500 conversion (taxable income $12,400), $1,240 of tax.
• Fill 12%: $66,500 conversion (taxable income $50,400), $5,800 of tax, an average rate of 8.7%.
• Fill 22%: $121,800 conversion (taxable income $105,700), $17,966 of tax. The last $55,300 costs 22%.

A single person's brackets are half as wide as a couple's, so the same IRA balance creates larger RMDs relative to the brackets. Single filers with large pre-tax balances often find that filling the 22% bracket in their 50s and early 60s is reasonable, because RMDs could otherwise land them in 24% later.

When not to convert

• You expect a lower tax rate later, for example because you plan to move from a high-tax state to a no-tax state.
• You will leave the IRA to charity, which pays no tax on it.
• You cannot pay the tax without using the IRA money and you are under 59½.
• The conversion would cost a large ACA subsidy that exceeds the expected future tax savings.
• You need the money within five years and are under 59½.

Record keeping for conversions

Each conversion is reported on Form 1099-R from the IRA custodian and on Form 8606 if you have any after-tax basis in traditional IRAs. Keep a simple ledger with the date, amount and tax year of every conversion. You will need it to prove when each conversion's five-year clock started if you take money out of the Roth before 59½. Custodians do not track this for you. Lavish Larry kept his records on napkins; Frugal Fran used a spreadsheet with a column for each year. Guess who knows what is penalty-free.

Timing within the year

Because conversions cannot be recharacterized (IRS Publication 590-B), it pays to convert once your income is known, usually November or December. Some people convert in pieces through the year to average market prices, then do a final top-up conversion in December. Remember that conversions done late in the year may need an estimated payment by January 15 or the annualized method (see estimated taxes).