Roth conversion 2026: harder math after TCJA sunset

What changed after TCJA sunset

A Roth conversion is when you transfer money from a traditional IRA (pre-tax) to a Roth IRA (post-tax). You pay income tax on the converted amount now, and all future growth + withdrawals are tax-free.

The TCJA-era math (2018-2025): • Convert $50K from traditional to Roth • Tax cost at 22% marginal: $11,000 • Convert $50K → $39,000 net into Roth • Grow at 7% for 20 years: $39K → $150,955 • Withdraw tax-free: full $150,955

The 2026 math (post-sunset): • Convert $50K from traditional to Roth • Tax cost at 25% marginal: $12,500 • Convert $50K → $37,500 net into Roth • Grow at 7% for 20 years: $37.5K → $145,150 • Withdraw tax-free: full $145,150

Difference: -$5,805 (less money in Roth)

In the meantime, your traditional IRA - if you had NOT converted - would have: • $50K grow at 7% for 20 years: $193,485 • Withdraw at retirement at, say, 15% (assuming lower retirement bracket): keep $164,462

So the comparison: • Roth (converted 2026 at 25%): $145,150 tax-free at retirement • Traditional (kept and withdrawn at 15%): $164,462 net at retirement • Difference: traditional wins by $19,312 if your retirement bracket is meaningfully lower

The breakeven retirement tax rate (for breakeven with Roth): if your retirement marginal rate will be LOWER than your conversion rate, traditional wins. If HIGHER, Roth wins. If same, it's a wash.

Why Roth conversions still make sense in some cases

Case 1: Low-income year (your best opportunity)

You're between jobs, on sabbatical, in school, or recently retired with no other income yet. You have IRA balances.

Example: 62-year-old retired with $1M IRA. Hasn't claimed Social Security yet. Has no other income except dividends.

Fill the 10% and 15% brackets: • Stand deduction 2026 (single, 65+): ~$9,500 • 10% bracket: $11,925 • 15% bracket up to $48,475 • Convert up to: $48,475 + $9,500 = $57,975 at 10-15% average rate • Tax cost: ~$5,815 (10% effective rate) • Massive advantage over deferring to 70 when SS + RMDs push you into 25-28% bracket

Case 2: Estate planning

Non-spouse Roth IRA inheritors get 10 years of tax-free growth (under SECURE Act 2.0 rules). Traditional IRA inheritors get 10 years to drain - all withdrawals are taxable to the heir.

If you have heirs in higher brackets than you: convert now at your rate, leave them tax-free Roth. Could save $50K-$200K over a $500K IRA passed to high-income kids.

Case 3: Fill brackets up to a specific level only

Don't convert "as much as possible." Convert only to fill specific brackets: • Convert to top of 15% bracket: low-cost • Convert to top of 25% bracket: marginal but acceptable • Convert beyond 25%: probably not worth it

Use the Roth conversion as a precision tool, not a sledgehammer.

Case 4: Future RMD planning

Traditional IRA withdrawals are mandatory starting age 73 (RMD age, raising to 75 in 2033). Roth IRAs have no RMDs in your lifetime. Convert before 73 to reduce RMD pressure later.

Case 5: Backdoor Roth (limited)

If your income is too high for direct Roth IRA contributions (>$161K single 2026), contribute non-deductible to traditional then immediately convert (the "backdoor"). The pro-rata rule still applies - watch your other IRA balances.

Why Roth conversions are usually a bad idea in 2026

Reason 1: You're in peak earning years

If your current bracket is 25% or higher and you expect retirement at 15-22%, every dollar converted now costs 3-10pp more than it would in retirement. The compounding advantage of Roth doesn't make up for the higher rate paid upfront.

Reason 2: You expect a lower retirement income

Most retirees have lower income than their peak earning years. The standard advice "your tax rate in retirement will be higher" is misleading - for the median earner, retirement brackets are similar or lower.

Reason 3: You might benefit from a future TCJA fix

If Congress restores TCJA brackets retroactively to 1/1/2026 - either via mid-2026 deal or post-election in 2027 - your 2026 conversion would have been done at higher rates than needed. You'd effectively over-paid the tax.

Reason 4: State tax considerations

If you live in a high-tax state today (NY 6.85%, CA 9.3% top, NJ 8.97%) and plan to retire to a no-state-tax state (FL, TX, NV), defer the tax until you're in the no-tax state. Don't convert NY tax now to avoid hypothetical FL tax later.

Reason 5: You have a clear runway for tax-efficient retirement

With $1M+ in traditional IRAs and a planned retirement at 60-65, you might naturally have 5-10 years of low-income years (60-70) where you can do small conversions at 10-15% brackets. Don't front-load conversions at 25-33% just to avoid future RMDs at 15-22%.

The numbers: when to convert how much

The "bracket-filling" method:

2026 single-filer bracket tops (taxable income): • 10% bracket: $11,925 • 15% bracket: $48,475 • 25% bracket: $117,375 • 28% bracket: $244,725

Rule of thumb: convert to the top of the next bracket where: • Today's bracket ≤ Expected future bracket

Example - currently in 15% bracket at $30K taxable income: • Convert: $48,475 - $30,000 = $18,475 to fill 15% bracket • Tax cost: $2,771 • If expected future bracket is 22-25%, this is a good deal • Don't convert beyond $48,475 (would pop into 25% bracket)

Example - currently in 25% bracket at $100K taxable income: • Convert: $117,375 - $100,000 = $17,375 to fill 25% bracket • Tax cost: $4,344 • If expected future bracket is 28-33% (high-income retiree), this is OK • If expected future bracket is 22%, you're going backwards

Pro-rata trap: if you have multiple traditional IRAs, the conversion is taxed pro-rata across deductible and non-deductible balances. You can't cherry-pick the non-deductible portion.

Five-year clock: each conversion has its own 5-year clock. Withdraw converted amount before 5 years AND before 59.5 = 10% penalty (on top of any tax). Conversions late in life are riskier for this reason.

State tax: most states tax IRA conversions just like federal. Some exceptions: • PA: tax-free contributions / distributions • Mississippi: tax-free distributions • Most states: full taxable in year of conversion

Practical 2026 action plan

If you're 50-59 (working high earner): • Probably skip conversions this year • Max 401(k) ($24K), HSA ($8.8K family), IRA ($7.5K) • Re-evaluate in 2027 after mid-term election outcome

If you're 60-65 (transitioning to retirement): • Start small conversions if you can keep total taxable income under $48K (15% bracket) • Don't pull Social Security yet • Convert annually until age 73 to reduce future RMDs

If you're 65-72 (already retired, pre-RMD): • Prime conversion years • Carefully manage MAGI for IRMAA brackets (Medicare premium surcharges) • 2026 IRMAA threshold (single): $103,000 - stay below if possible • Convert what you can without triggering IRMAA tier 2+ (effective ~$60K MAGI buffer)

If you're 73+ (RMD age): • Conversion math worsens - you're already pulling RMDs which fills brackets • Consider QCD (Qualified Charitable Distribution) instead: $108K/yr in 2026 can be donated directly from IRA, satisfies RMD, reduces AGI • Only convert if heir-planning benefit clearly outweighs lifetime tax cost

If you have a small business / high MAGI control: • Plan a low-income "design year" - take a sabbatical, defer billings to next year, time it for a conversion year • This works especially well for self-employed professionals (consultants, lawyers, doctors with own practice) • A "down" year with $30K taxable income is a $100K+ conversion opportunity

If you expect TCJA restoration via Congress: • Delay any 2026 conversions if possible until after mid-term elections • If Congress acts retroactively in 2027, you avoided paying at higher rates • If Congress doesn't act, you can convert in 2027 instead