The software available to financial planners allows for retirement Monte Carlo simulations, implements AI to scan tax returns to call out tax planning opportunities, and calculates optimal Roth conversion strategy on the fly.
It’s never been a better time to be a financial advisor (or the client of a tech-forward one)! Find out why now might be the ideal moment for you to convert to a Roth IRA.
Executive Summary:
Leverage Historically Low Tax Rates
Current federal income tax rates, established by the Tax Cuts and Jobs Act (TCJA), are at historic lows but are set to expire in 2026. Converting funds to a Roth IRA now allows you to lock in these favorable rates before potential increases.
Capitalize on Down Markets
Market downturns present a unique opportunity to convert at lower account values. Paying taxes on a reduced asset value means future gains in the Roth IRA can grow tax-free, turning volatility into a strategic advantage.
Hedge Against Future Tax Uncertainty
Rising national debt and shifting political landscapes suggest that tax rates could increase in the future. A Roth conversion provides flexibility and control, enabling you to draw from tax-free accounts when tax rates rise in retirement.
Maximize Tax Efficiency Over Time
Spreading conversions over multiple years and taking advantage of low-income periods ensures tax-efficient outcomes. This approach reduces the risk of large tax burdens and minimizes Required Minimum Distributions (RMDs) from traditional accounts.
Simplify Decision-Making with a Roth Conversion Calculator
A Roth conversion calculator is an invaluable tool for tailoring your strategy to your unique financial situation. It simplifies complex tax calculations, visualizes the impact of conversions on your tax bracket, and ensures you make informed, data-driven decisions aligned with your long-term goals.
Financial planning software has come a long way from when I started in 2009. At that time, our most “sophisticated” tool was a clip art future/present value calculator.
Yet, for all our technology, as humans, we still must make individual decisions based on what we know. And for retirement and tax planning, timing can be absolutely everything.
That’s especially true for Roth conversions, a strategy that allows you to move funds from a traditional IRA or 401k into a Roth IRA. With this strategy, you pay taxes on the conversion amount now for tax-free withdrawals later.
While this concept isn’t new, there are several reasons now is an inviting moment to consider using a Roth conversion calculator and making this move.
Why Roth Conversions Make Sense Today
1. Historically Low Tax Rates
Federal income tax rates are at some of their lowest levels in modern history, thanks to the Tax Cuts and Jobs Act (TCJA). These lower rates will expire (without intervention) in 2026, potentially increasing the tax burden on withdrawals from traditional retirement accounts. By converting funds now, you lock in today’s rates and avoid potentially higher taxes later.
2. Market Volatility Creates Opportunities
For the record, I’m not suggesting a down year in 2025.
However, if we have a market decline, the value of your retirement accounts may temporarily decrease. This presents a wonderful opportunity to convert assets to a Roth IRA at a lower tax cost.
You’re essentially paying taxes on a discounted amount. Allowing your future gains to grow tax free. Providing you at least one positive aspect to a down market.
3. Future Tax Uncertainty
With growing national debt and changing political climates, there’s a good chance tax rates could rise in the future. A Roth conversion acts as a hedge against this uncertainty, giving you more control over your retirement income.
In retirement, it could be useful to have both Traditional and Roth assets. Giving you the ability to decide how much income to pull from either bucket in any year.
Maximize Tax Efficiency with Roth Conversions
One of the greatest advantages of a Roth conversion is its potential to smooth out your tax burden.
Here’s how:
1. Spread Conversions Over Multiple Years
Instead of converting a large sum in one year, which could push you into a higher tax bracket, you can convert smaller amounts over several years. A Roth conversion calculator helps pinpoint the optimal annual conversion amount to minimize your overall tax liability.
2. Take Advantage of Low-Income Years
If you’re in a transition period such as between jobs, early retirement, or before starting Social Security, you may find yourself in a lower tax bracket. These years are ideal for Roth conversions, as the tax cost will be significantly reduced.
Not taking advantage of these lower tax years could unintentionally put more money in Uncle Sam’s pockets.
3. Minimize Required Minimum Distributions (RMDs)
Traditional retirement accounts come with RMDs starting at age 73, which can force you into a higher tax bracket in retirement.
Using this RMD calculator, you can see an 80-year-old with a $2,000,000 balance needs to withdraw $99,009.09 from their traditional IRA. That amount could easily push them into a higher tax bracket in retirement (not to mention the potential for higher Medicare premiums).
By converting to a Roth IRA, you eliminate RMDs entirely, giving you more flexibility and control over your income.
Follow along with me as I walk through these steps using my Roth conversion calculator software below 👇
The Role of a Roth Conversion Calculator
A Roth conversion calculator is a powerful tool to help you navigate this process with confidence.
Here’s why it’s invaluable:
1. Simplifies Complex Calculations
Figuring out the tax impact of a Roth conversion can be overwhelming (and nearly impossible to do accurately). Especially when juggling multiple accounts and income sources.
A calculator does the heavy lifting for you, breaking down exactly how much to convert and what the tax cost will be.
2. Tailors Scenarios to Your Situation
Calculators ask for data specific to you. To do their work, they will need to know variables like your current income, current assets, anticipated future income, and monthly spending.
Imagine your unique Roth conversion strategy as a fingerprint. Not one will be created exactly like another.
3. Helps You Stay in Control
By visualizing how different conversion amounts impact your tax bracket, you can make informed decisions that align with your long-term goals. For instance, you might decide to convert just enough to stay within your current tax bracket while still reducing future RMDs.
A common strategy my calculator uses is called “filling up the bracket.”
Let’s say you are in the 24% fed bracket but have $100,000 to go until you bump up to the higher tax rate. The calculator might believe it is tax wise to convert the $100,000 today to maximize your full 24% tax bracket. Thus, “filling up your tax bracket” with conversion income.
Putting It All Together
Imagine you’re 50 years old, with a solid income and a growing retirement nest egg.
You know taxes are likely to rise, and you’re concerned about how RMDs will impact your retirement income down the road. By using a Roth conversion calculator, you can:
Identify how much to convert this year to maximize tax efficiency.
Plan conversions over the next decade to minimize your overall tax liability.
Gain comfort knowing your future withdrawals from Roth assets will be tax-free.
Ready to Take the Next Step?
A Roth conversion is a strategic move that requires careful planning, and a Roth conversion calculator is your starting point. Whether you’re looking to take advantage of today’s low tax rates, are interested in enhanced tax-efficiency, or simply want to feel more in control of your retirement plan, this tool can help you chart a clear path forward.
As always, working with a qualified financial advisor can provide additional clarity and confidence. If you’re ready to explore how a Roth conversion fits into your retirement strategy, download my Roth conversion guide and get FREE access to my Roth conversion software.
With it, you can begin to tailor a plan that empowers you to enjoy today while preparing for tomorrow.
Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
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