Roth Conversion Estimator
Key Takeaways
- A Roth conversion is taxable at ordinary rates in the year performed; the Estimator treats the amount converted as current income.
- Potential future Roth growth is modeled as after-tax (no RMDs), while traditional IRA growth remains pre-tax and subject to RMDs beginning at 73.
- The five-year rule matters: tax-free Roth earnings generally require a 5-year holding period plus another qualifying condition (e.g., age 59½).
- Conversions can lift MAGI and may affect Medicare premiums two years later (IRMAA); the Estimator flags this as a planning caveat.
What the Roth Conversion Estimator Does
The tool evaluates two scenarios based on the user’s annual income, marginal tax bracket, traditional IRA balance, and age:
- No conversion: keep the traditional IRA, defer taxes, and take RMDs at the horizon.
- Converting now means the amount converted is taxed in the current year, and future growth in the Roth is modeled as tax-free, provided the five-year rules for qualified withdrawals are met.
It outputs three numbers:
- “Tax due this year” - the estimated federal tax on the conversion, assuming outside cash pays the bill.
- “After-tax at horizon - no conversion” vs. “After-tax at horizon - convert now” - a side-by-side view of projected after-tax values.
- “Roth advantage at horizon” - the dollar difference between the two paths given the inputs.
A chart shows how the after-tax value compounds over time on each path.
How to Enter the Inputs (and Why Each Matters)
1) Annual income and current marginal bracket
Enter the estimated taxable income for the current year. The conversion amount stacks on top and is taxed at ordinary rates (not capital-gains rates) per IRS rules for Roth conversions. “Pay tax from outside cash” assumes the IRA dollars remain invested, preserving tax-free growth potential after conversion.
So what? Small conversions in a low-income year often face lower brackets than large conversions in peak earnings years.
2) Traditional IRA balance and age
These drive long-run differences: traditional IRAs have RMDs beginning at age 73 under SECURE 2.0; Roth IRAs do not have lifetime RMDs for the original owner. The model, therefore, applies a haircut to the traditional path at the horizon to reflect taxes due on distributions, while the Roth path compounds after-tax.
3) Expected return and retirement age
Growth rates and the time to retirement shape whether “tax-free forever” outweighs “tax today.” Longer horizons and higher expected returns generally strengthen the Roth case because more future growth escapes taxation.
4) Advanced: conversion amount & ladder option
The tool lets users test a one-time conversion or compare against a five-year partial-conversion ladder that spreads the tax hit over multiple years. This can keep annual income within targeted brackets and, for some, below Medicare IRMAA thresholds.
The Rules Behind the Math - In Plain English
Conversions are taxable now; Roth growth can be tax-free later
The IRS treats a conversion as a distribution from the traditional IRA (taxable) followed by a rollover to a Roth (Pub. 590-A). Once in the Roth, future qualified withdrawals are tax-free, which generally requires (1) the five-year clock and (2) another condition, such as reaching age 59½ (Pub. 590-B).
RMDs start at 73; Roth IRAs have no lifetime RMDs for the owner
Traditional IRAs require minimum distributions beginning at 73 (rising to 75 in later years per law changes). Roth IRAs remain outside the RMD system for the original owner, which is why conversions can reduce future forced taxation.
Beware of knock-on effects (IRMAA, credits, deductions)
A conversion increases modified adjusted gross income (MAGI). Medicare uses MAGI from two years prior to set income-related monthly adjustment amounts (IRMAA) for Part B and D premiums; crossing a threshold can raise premiums for a year. The Estimator doesn’t decide medical coverage, but surfaces this as a data point for discussion with a tax professional.
Reading the Outputs
- Breakeven year: where the Roth line overtakes the traditional line on an after-tax basis. Short horizons or low returns push breakeven further out.
- Roth advantage at horizon: a dollar estimate, not a guarantee. The tool assumes steady returns and bracket stability; reality can differ.
- Ladder comparison: spreading conversions can help keep income within chosen brackets and may help manage IRMAA exposure.
This interactive tool is for educational purposes only. It provides a simplified illustration of how a Roth conversion or partial conversion strategy might affect hypothetical after-tax outcomes over time. All results rely on user-entered inputs and assumptions about future returns, tax rates, contribution patterns, and withdrawal timing. These assumptions may not reflect actual market conditions, tax law changes, IRS rules, or individual circumstances. The outputs are hypothetical and are not predictions, projections, guarantees, or estimates of future performance or tax outcomes. Actual results may differ materially. Nothing presented here constitutes tax advice, investment advice, financial advice, or a recommendation to perform a Roth conversion or take any specific action.
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