Convert Now vs Don't Convert

$200,000 Traditional IRA balance, 20 years to retirement, 7% growth. Current bracket 22%, retirement bracket 28%:

CONVERT NOW (pay 22% tax today, full Roth grows tax-free)
  Tax paid today: $200,000 x 22% = $44,000 (from OUTSIDE IRA)
  Roth balance after conversion: $200,000 (no haircut if outside cash pays tax)
  20-year growth at 7%: $200,000 x (1.07^20) = $773,944
  Tax at withdrawal: $0
  Net wealth in retirement: $773,944
  Cost: $44,000 paid up front (counted against this)

DON'T CONVERT (continue Traditional IRA, taxed on withdrawal)
  No tax paid today
  20-year growth at 7%: $200,000 x (1.07^20) = $773,944
  Tax at withdrawal (28% bracket): $773,944 x 28% = $216,704
  Net wealth in retirement: $557,239
  Cost: $0 up front

If you invest the $44K elsewhere at 7%: $44,000 x 1.07^20 = $170,267
  But this growth is taxable along the way (cap gains, interest) - net maybe $130K

Comparison net positions at retirement:
  Convert + side investment: $773,944 + $130,000 = $903,944
  Don't convert: $557,239

Conversion wins by ~$346K over 20 years.

When does the math flip?
  If current bracket is HIGHER than retirement bracket, you're paying more
  tax now to avoid less tax later - skip the conversion.

  Example: 32% current, 22% retirement -> taxNow $64K, vs $170K saved later =
  net loss of $106K over 20 years from converting. Don't convert in this case.

Pay tax at the LOWEST bracket you'll ever see

The core principle of a Roth conversion is bracket arbitrage. You want to pay tax at the LOWEST possible bracket and have the tax-free growth at the HIGHEST possible future bracket. For most people, that means converting in years where income temporarily drops: between jobs, sabbatical, early retirement (before claiming Social Security), or after a low-income year. A 10% drop in current bracket vs retirement bracket adds up to enormous lifetime savings.

The 'fill the bracket' technique

If you're in the 22% bracket today and headroom remains before hitting the 24% bracket, convert exactly enough to use up that 22% bracket space - no more, no less. Example: 2026 single filer, 22% bracket ends at $103,350 taxable income. If your taxable income is $70K, you have $33,350 of 22% headroom - convert $33K and stop. Next year, convert another $33K. Over a decade, you can convert $300K+ of pre-tax money at the 22% rate without ever stepping into 24%.

The IRA aggregation rule trap

If you have multiple Traditional IRAs and want to do a backdoor Roth, the pro-rata rule says ALL your Traditional IRAs are aggregated when calculating the taxable portion of any conversion. So if you have $50K of after-tax money in one IRA + $200K of pre-tax in another, a conversion of $7K isn't 'pure after-tax' - it's pro-rated. Workaround: roll Traditional IRAs into your employer 401(k) (if plan allows reverse rollovers), then convert the remaining after-tax dollars cleanly.

The 5-year clock on each conversion

Each Roth conversion starts its own 5-year clock. To withdraw the CONVERTED amount penalty-free before age 59.5, you must wait 5 years from the conversion year. So if you convert at age 56, you can't tap that money until 61 (or 59.5 if 5 years have passed). After age 59.5 this rule doesn't apply to withdrawals (any reason). Doesn't apply to earnings either, which have their own rules.