Understanding Roth IRA Conversions
Converting to a Roth individual retirement account (IRA) can potentially decrease lifetime taxes, but this approach may not suit everyone. The decision becomes even more intricate with recent changes stemming from President Donald Trump’s major legislation and other developments.
Essentially, Roth conversions involve transferring funds from a traditional IRA (either pretax or nondeductible) into a Roth IRA, which allows for tax-free growth. However, the trade-off is that this process can increase your taxable income for the year in which the conversion occurs.
Experts suggest this might be advantageous for those with substantial pretax retirement savings and who anticipate higher tax rates at the time of withdrawal.
As of the end of 2025, U.S. households owning IRAs held around $15.9 trillion in traditional IRAs, contrasted with $2.4 trillion in after-tax Roth IRAs, according to a 2026 report from the Investment Company Institute.
Charissa Anderson, a certified financial planner and executive vice president at Ferguson Wellman Capital Management, noted that evaluating Roth conversions remains a popular strategy year after year. Her firm earned a spot on CNBC’s Financial Advisor 100 list for 2026, ranking at No. 52.
Recent data from Fidelity indicates a significant increase in Roth conversions, which were up 41% from the same timeframe in 2025, based on an analysis of nearly 20 million IRA accounts.
Nevertheless, the decision to convert isn’t straightforward. “There are just so many variables,” remarked Tommy Lucas, a CFP from Moisand Fitzgerald Tamayo. His firm stands at No. 44 on CNBC’s Financial Advisor 100 list for 2026. Factors like when to claim Social Security, life expectancy, and legacy goals can all influence the choice.
Lucas also pointed out that depending on your income bracket, sometimes the effort might not justify the results. The parameters can shift from year to year, necessitating careful consideration.
The Tax Implications of Roth Conversions
When contemplating a Roth conversion, financial advisors suggest factoring in current taxes alongside future projections. This isn’t entirely straightforward; as Tommy Blackburn, a senior planner and partner at Mason and Associates, explained, the tax bracket may not reflect the effective rate when additional income could compromise other tax benefits.
Blackburn shared a scenario involving a client in the 22% tax bracket with a college child. Income from a conversion could escalate their tax rate to over 30%, as they might lose access to an education tax credit that lessens their tax burden. Conversely, a client in the 10% bracket might convert a small amount without incurring additional taxes for that year.
Health Insurance Considerations for ACA Enrollees
Increasing your adjusted gross income (AGI) through Roth conversions can also impact eligibility for the premium tax credit, which subsidizes Affordable Care Act (ACA) health insurance. Exceeding a particular income threshold—even by a dollar—could lead to losing access to the credit, often referred to as the “ACA cliff.” This affects individuals when their household income surpasses 400% of the federal poverty level, which for 2026 is approximately $63,000 for a single person and about $129,000 for a family of four.
Bill Shafransky, a senior wealth advisor at Moneco Advisors, advises those enrolled in marketplace health insurance to “proceed with caution” regarding Roth conversions. “This is one of those financial strategies where you really want to dot your i’s and cross your t’s before acting,” he added.
