Why Today May Be A  Good Time To Consider A Roth Conversation

The question that matters most in retirement isn't how much you've saved. It's how much of it you'll actually keep. For millions of Americans, a large share of retirement savings sits in traditional IRAs and 401(k)s. Those accounts have done exactly what they were designed to do — defer taxes during peak earning years. But deferral comes with a distinction that's easy to overlook:

When money eventually comes out of a traditional IRA or 401(k), those distributions are generally taxed as ordinary income. And once Required Minimum Distributions begin, retirees may have to take taxable withdrawals whether they need the income or not. Which raises a question worth sitting with: what if today's tax rates turn out to be lower than the rates you'll face later?

Nobody can say what Congress will do with tax rates in 10, 20 or 30 years. But we know what the rates are right now.

For 2026, federal individual income-tax brackets run from 10% to 37%, with intermediate brackets at 12%, 22%, 24%, 32% and 35%.

Historically, the United States has gone through long stretches with substantially higher top marginal rates. That's not a prediction that rates will return to those levels. It's a reminder of something simpler: today's tax rates are not guaranteed forever.

The federal government's balance sheet makes this more than an academic exercise. The Congressional Budget Office projects a federal budget deficit of roughly $1.9 trillion in fiscal year 2026, growing to approximately $3.1 trillion by 2036. Federal debt held by the public is projected to reach about 101% of GDP in 2026 and roughly 120% by 2036 — a level that would exceed the previous post-World War II record. Interest on that debt is becoming a major line item of its own. CBO projects net interest costs rising from about 3.3% of GDP in 2026 to 4.6% by 2036. There are only so many ways a government can respond to persistent deficits over the long run: reduce spending, grow the economy, raise revenue, borrow more, or some mix of the four. No one can say with certainty that income-tax rates will rise. But given the scale of the projections, it seems reasonable for retirees to consider the possibility.

A Roth conversion moves money from a traditional IRA into a Roth IRA. You generally pay ordinary income tax on the taxable amount converted today, and in exchange, qualified Roth withdrawals can potentially come out income-tax-free later. The two accounts represent two different bets: Traditional IRA: "Don't tax me now. Tax me later, at whatever the rates happen to be." Roth IRA: "Tax me now, at a rate I can see, and let the rest potentially grow and come out tax-free." The question was never whether you enjoy paying taxes today. Nobody does. The question is whether you'd rather pay at a known rate or stay exposed to an unknown one.

Picture a 67-year-old with $1,000,000 in a traditional IRA. If that balance keeps growing, it could be considerably larger by the time RMDs become a meaningful part of the retiree's income — and those distributions stack on top of Social Security, pensions and investment income.

A larger taxable income can:

A well-planned series of conversions, made before RMDs grow large, may soften several of these pressures at once.

This may be the single most important point in Roth planning, and it's the one most often missed. Converting an entire $1 million IRA in a single year would make little sense for most people. The conversion itself would push them into much higher brackets — precisely the outcome they were trying to avoid.

The alternative is to convert deliberately, over a period of years. Rather than converting $500,000 in one shot, someone might convert $75,000 to $125,000 annually, calibrated to their income, deductions, current bracket, Medicare situation and broader plan. The goal is to use today's brackets on purpose, rather than run into tomorrow's by accident.

A conversion answers the question of when you pay the tax. It doesn't answer where the converted dollars go once they arrive in the Roth. One option some retirees evaluate is funding the Roth with a fixed index annuity that credits a premium bonus. The mechanics are straightforward. Suppose you convert $100,000 from a traditional IRA. Depending on your bracket and your other income, the tax on that conversion might land somewhere in the range of $12,000 to $22,000, paid from savings outside the account. If the Roth is then funded with an index annuity that credits a premium bonus — some contracts have offered bonuses in the mid-to-high teens — the contract can be issued with an account value above the amount converted. On $100,000 with a 17% bonus, that's $117,000 credited at issue.

An important distinction: this is not the type of contract where the bonus is credited to an income or benefit base. Many index annuities credit a headline bonus only to a separate value used to calculate future lifetime withdrawals — money that can never be accessed as a lump sum and disappears if the contract is surrendered. That is a different product and a different conversation. What's described here is a bonus credited directly to the accumulation value — the actual account value that grows with index crediting and that the contract owner can withdraw or surrender, subject to the contract's terms. In the example above, the $117,000 is real account value, not a phantom figure used only for income calculations. Because the entire balance is inside a Roth, that full amount is what compounds and what can potentially be withdrawn income-tax-free.

Two things about that $17,000 are worth understanding clearly.

What it is. It's additional account value inside a tax-free wrapper. Assuming Roth requirements are met, every dollar of it can potentially grow and later be withdrawn income-tax-free. That's a real distinction from the same bonus credited inside a traditional IRA, where the bonus and all of its growth would eventually come out as ordinary income. A premium bonus is simply worth more inside a Roth than inside a traditional IRA, because you keep all of it rather than sharing it with a future tax bracket. What it isn't. It is not cash to pay your tax bill. The conversion tax still has to be paid from another source — and it should be, since paying it out of the converted funds shrinks the account and can trigger a 10% penalty for anyone under 59½. The bonus sits inside the annuity, subject to that contract's withdrawal provisions and surrender schedule. What it can do is leave the Roth balance higher than the amount converted, so the account starts compounding from a larger base than the retiree moved over.

There's one more consideration specific to pairing these strategies. A Roth conversion can no longer be undone — the ability to recharacterize a conversion was eliminated in 2018. An annuity with a long surrender schedule is also difficult to reverse without cost. Doing both in the same year means committing to the tax bill and to a long-term, relatively illiquid contract at the same time. For a retiree who wanted lifetime income and principal protection anyway, that combination can make sense, and the tax-free wrapper makes the bonus more valuable than it would be elsewhere. For someone who may need access to those dollars, or who hasn't yet decided how the money should be invested, the surrender schedule deserves as much scrutiny as the bonus.

Roth conversions matter even more when the IRA owner doesn't expect to spend all the money. Under current law, many non-spouse beneficiaries who inherit a traditional IRA generally must empty the account by the end of the 10th year following the owner's death. Adult children often inherit during their highest-earning years, and every distribution lands on top of income they're already being taxed on. A Roth IRA can potentially pass to those beneficiaries far more efficiently, since qualified distributions are generally income-tax-free — though inherited Roth accounts remain subject to their own distribution rules.

So Roth conversion planning isn't only about your tax bill. It can be about your family's.

With a traditional IRA, you got the deduction or the deferral on the way in. Eventually, the government collects its share on the way out. The only open variable is what rate applies when that happens. With deficits projected to stay historically large and federal debt projected to keep climbing, assuming the current tax environment will hold steady for decades may not be the most conservative assumption available. A Roth conversion is a way to voluntarily recognize taxable income now in exchange for potentially building a pool of money that can grow and later be distributed income-tax-free, provided Roth requirements are met. That doesn't mean everyone should convert. It means anyone approaching retirement with significant tax-deferred savings should at least run the numbers.

Don't ask, "Should I convert my IRA?"

Ask: "How much should I convert each year, and at what tax rate?"

The answer might be $25,000. It might be $100,000. It might be $200,000. And depending on the circumstances, the right answer may well be nothing at all.

A sound conversion strategy looks at current income, projected RMDs, Social Security, pensions, IRMAA thresholds, expected future brackets, the money available to pay the conversion tax, and who is ultimately meant to inherit the account. The objective isn't to pay taxes sooner. It's to pay them when the terms are most favorable — and to hold more control over your retirement income for the rest of your life.