Roth IRA Conversions in 2026: When Are They Worth It?
Roth IRA Conversions in 2026: When Are They Worth It?
Shanti
10/19/20262 min read
Roth IRA Conversions in 2026: When Are They Worth It?
Converting a traditional retirement account to a Roth IRA may reduce taxes in the future. But it can also increase your tax bill this year and affect health insurance credits or Medicare premiums. Consider these factors before making a conversion.
What is a Roth IRA conversion?
A Roth IRA conversion moves some or all of the money in a traditional IRA into a Roth IRA. Money that has not yet been taxed is generally included in your taxable income for the year of the conversion. The tax treatment of contributions you already made with after tax money may differ, depending on your account and contribution history.
Why could a conversion help in the future?
After a conversion, investment growth in a Roth IRA can be tax free, and qualified withdrawals are generally tax free as well. A conversion may be useful if you expect to be in a higher tax bracket later or want to manage how much of your retirement income will be taxable.
However, compare the possible future benefit with the tax bill you may owe now. If you use money from the retirement account to pay the conversion tax, less money will remain invested in the Roth IRA.
Tax effects to consider
The taxable part of a conversion is added to your income for that year. This may move some of your income into a higher tax bracket or affect certain deductions and tax credits. Converting an entire account in one year is not always the best option. Some people convert portions over several years to manage the added income.
Possible effect on ACA health insurance
If you get health insurance through the ACA Marketplace and receive a tax credit to lower your premium, check how a conversion could affect your household income. Modified adjusted gross income is used to determine eligibility for the premium tax credit, and income from a traditional IRA conversion is included in that calculation. A higher income may change the amount of credit you receive.
Possible effect on Medicare premiums
For some people with Medicare, higher income can lead to additional charges for Medicare Part B and Part D. The Social Security Administration generally uses tax information from two years earlier to determine these charges. A Roth conversion could therefore affect your Medicare premiums in a future year.
Before converting to a Roth IRA
• Estimate the conversion amount and the tax you may owe for that year.
• Check whether the higher income could affect your ACA tax credit or Medicare premiums.
• If possible, pay the conversion tax with money outside your retirement account.
• Consider converting smaller amounts over several years.
• Review your calculations with a tax professional or financial advisor before taking action.
This article is for general information only and is not tax or investment advice. Tax rules and individual circumstances vary.
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