A Roth conversion moves money from a traditional IRA or 401k to a Roth IRA. You pay income tax on the converted amount now, but the money then grows tax-free and isn't subject to required minimum distributions (RMDs). It's often worth it during low-income years, especially early retirement before Social Security begins.
When you convert, your custodian distributes funds from your traditional account and deposits them into your Roth IRA. The converted amount is added to your taxable income for the year, you owe federal (and in most states, state) income tax on it at your marginal rate. There's no 10% early withdrawal penalty on conversions, regardless of your age.
The best time to convert is when your income is lower than it will be in the future. For most retirees, the prime Roth conversion window is between retirement and the start of Social Security and RMDs, typically ages 60-72. During this window, your taxable income may be the lowest it will be for the rest of your life. Converting during this window at a 22% or 24% rate can save you from paying 32% or higher when RMDs force large withdrawals later.
Illinois doesn't tax retirement account distributions, meaning Roth conversions aren't subject to Illinois income tax after age 59½. This is a meaningful advantage for Northern Suburbs residents: the state tax cost of conversion is effectively zero, making federal bracket management the only variable to tune.
The break-even on a Roth conversion depends on whether your current tax rate is lower than your expected future rate. If you're converting at 22% today and would otherwise withdraw at 22% in retirement, the Roth conversion breaks even only if the tax-free growth in the Roth exceeds the opportunity cost of paying taxes now. If you expect your future rate to be higher (due to RMDs, Social Security, or tax law changes), the conversion is valuable.
Key facts
- Converted amount is added to taxable income in the year of conversion, no 10% penalty at any age
- Illinois doesn't tax IRA/retirement account distributions for residents, the state tax cost of Roth conversion is zero after 59½
- The optimal Roth conversion window: ages 60-72, before RMDs and Social Security kick in
- Roth IRAs aren't subject to RMDs during the owner's lifetime, unlike traditional IRAs (RMDs begin at age 73)
- Roth distributions aren't counted as MAGI for IRMAA or Social Security taxation purposes
- Five-year rule: each Roth conversion has a 5-year clock before earnings can be withdrawn penalty-free, but this applies to earnings, not principal
How much should I convert each year?
The optimal conversion amount fills up your current tax bracket without crossing into the next, and stays below IRMAA thresholds if you're on or approaching Medicare. For example, if your 2026 taxable income before conversion is $95,000 and the 22% bracket tops out at $201,050 (married filing jointly), you can convert up to $106,050 and pay 22% on every dollar. Crossing into the 24% bracket may still be worthwhile, but the analysis changes.
What happens to a Roth conversion if I die before I benefit from it?
Your heirs inherit a Roth IRA tax-free. Inherited Roth accounts are subject to the 10-year distribution rule for most non-spouse beneficiaries under the SECURE Act, but since distributions are tax-free, the inherited Roth is still a superior asset for heirs compared to a traditional IRA. The Roth conversion benefits both you and your estate.