One of the most common questions affluent investors ask is: "Should I pay taxes now through a Roth conversion, or leave the tax burden to my children and heirs later?"

The answer is rarely simple. A Roth conversion can be one of the most powerful tax-planning strategies available, but timing matters. The decision involves evaluating current income, future tax rates, estate objectives, and the impact of paying taxes today versus preserving assets for future generations.

For households with significant retirement assets, a Roth conversion should not be viewed as a one-time transaction. Instead, it is often best considered as part of a long-term tax-management strategy.

What Is a Roth Conversion?

A Roth conversion occurs when assets are moved from a traditional IRA into a Roth IRA. The amount converted is generally taxable as ordinary income in the year of the conversion. Once inside the Roth IRA, future growth can potentially be tax-free, and Roth IRAs are not subject to Required Minimum Distributions (RMDs) during the owner’s lifetime.

In simple terms, a Roth conversion is a decision to voluntarily pay taxes today in exchange for potentially avoiding taxes later.

The Core Question: Are Taxes Lower Today or Tomorrow?

The primary consideration is whether your tax rate today is lower than the tax rate that will apply in the future.

If you believe future tax rates will be higher—either because of your personal income situation or because Congress raises tax rates—a Roth conversion may make sense. If you expect to be in a substantially lower tax bracket later, delaying taxation may be more advantageous.

The challenge is that no one knows with certainty what future tax rates will be.

Understanding Your Current Tax Bracket

For high-net-worth investors, determining the "right" amount to convert often begins with understanding current taxable income. Income may come from multiple sources, including:

  • Social Security benefits
  • Pension income
  • Investment dividends and interest
  • Capital gains
  • Rental income
  • W-2 wages or business income
  • Required Minimum Distributions

Each additional dollar converted increases taxable income and may push income into a higher marginal tax bracket. A thoughtful analysis frequently evaluates whether conversions should be made up to the top of a particular bracket, such as the 24% or 32% brackets, which become important decision points for many affluent retirees. Crossing into significantly higher brackets may reduce the attractiveness of a large conversion.

Rather than converting an entire IRA at once, many investors benefit from a series of partial conversions spread across several years.

One of the Best Opportunities: Temporary Low-Income Years

Some of the most attractive Roth conversion opportunities occur during temporary periods of reduced income. In many cases, these "gap years" are among the most valuable conversion windows a family will ever have.

Retirement before Social Security. An individual who retires at age 62 but delays Social Security until age 70 may have several years where taxable income is substantially lower than it will be once Social Security and RMDs begin.

Retirement before Required Minimum Distributions. The years between retirement and the start of RMDs often provide significant flexibility for Roth conversions at favorable tax rates.

Business sale or career transition. An executive or business owner may experience a year with unusually low earned income following a sale or transition—those years may provide valuable conversion opportunities.

Sabbaticals or employment gaps. Professionals taking time away from work may temporarily fall into lower tax brackets, creating an opportunity to convert assets at a lower tax cost.

Why High-Net-Worth Families Should Pay Special Attention

Many affluent investors assume they will be in a lower tax bracket during retirement. Increasingly, that assumption is proving incorrect.

Large IRA balances can create:

  • Significant Required Minimum Distributions
  • Higher Medicare premiums (IRMAA surcharges)
  • Increased taxation of Social Security benefits
  • Larger taxable estates
  • Higher tax burdens for heirs

The reality is that some retirees discover they are in the same (or even higher) tax bracket after retirement than they were while working. For these families, converting assets while controlling the tax rate may be preferable to waiting for future RMDs to force income recognition.

The Estate Planning Perspective

Historically, many investors viewed traditional IRAs as an excellent asset to leave to children. The rules have changed.

Under current law, most non-spouse beneficiaries must withdraw inherited IRA assets within ten years. As a result, heirs often inherit not only the assets but also a future tax bill.

The timing of that tax bill depends on whether the original owner had already begun taking Required Minimum Distributions. If the owner died on or after their RMD start date, non-spouse beneficiaries must take annual distributions in years one through nine and fully deplete the account by the end of year ten. If the owner died before RMDs began, no annual distributions are required during those first nine years — but the entire balance must still be withdrawn by the end of the tenth year. Either way, the heir has limited flexibility, and the distributions are taxable as ordinary income.

Consider the impact: a child in a high-income profession may already be in a 32%, 35%, or 37% federal bracket. Adding large inherited IRA distributions during peak earning years can create a substantial tax burden.

By contrast, a Roth IRA generally passes to heirs income-tax-free, assuming applicable holding requirements are satisfied. In some situations, parents may intentionally choose to pay taxes at their own 22%, 24%, or 32% rate today to avoid exposing heirs to potentially higher rates later.

Paying the Tax Bill Matters

One frequently overlooked factor is how the conversion tax will be paid. Generally speaking, Roth conversions are most attractive when taxes can be paid from assets outside the IRA.

Using taxable savings to pay the tax allows the entire converted amount to remain invested inside the Roth account. The more assets that remain in the Roth environment, the greater the potential long-term benefit.

Avoiding the "All or Nothing" Mistake

Many investors mistakenly believe they must convert their entire IRA in one year. In reality, some of the most successful Roth strategies involve:

  • Annual partial conversions
  • Tax-bracket management
  • Multi-year planning
  • Coordination with investment income
  • Coordination with Social Security claiming decisions
  • Coordination with future RMDs

A series of carefully planned conversions over five to ten years can often produce significantly better outcomes than one large conversion.

Every Conversion Should Be Modeled

The decision should never be made based solely on a rule of thumb. Important variables include:

  • Current age and life expectancy
  • Current tax bracket and expected future tax bracket
  • IRA balance and investment return assumptions
  • State income taxes
  • Social Security benefits and Medicare premium impacts
  • Estate planning objectives and heirs’ likely tax brackets

A proper analysis should compare multiple scenarios and evaluate the long-term after-tax results.

You Should Not Need to Pay a Separate Consulting Fee for This Analysis

Given the importance of tax planning, many investors assume they need to hire a specialist and pay a substantial fee for a Roth conversion study. While complex situations may occasionally require additional expertise, a competent financial advisor should generally be able to evaluate Roth conversion opportunities as part of the normal advisory relationship.

Tax-aware retirement planning is not an exotic service. It is a core component of comprehensive wealth management. Clients should expect their advisor to understand income sources, tax brackets, retirement cash-flow needs, estate planning objectives, and the impact of future Required Minimum Distributions (RMDs).

The goal is not simply to determine whether a Roth conversion is beneficial. The goal is to determine how much should be converted, when it should be converted, and how the decision affects the family’s long-term after-tax wealth.

The Bottom Line

A Roth conversion is fundamentally a tax-rate arbitrage decision. You are choosing whether to pay taxes today or later.

For many high-net-worth families, the best opportunities occur during years of temporarily lower income, before Social Security begins, before Required Minimum Distributions start, or during periods of reduced earned income.

The most successful strategies typically involve careful planning over multiple years rather than a one-time conversion. Most importantly, the decision should be evaluated in the context of the family’s entire financial picture—not just today’s tax return.

When executed thoughtfully, a Roth conversion can reduce future tax liabilities, increase retirement flexibility, and potentially leave a more tax-efficient legacy to the next generation.

BIP Wealth, LLC (“BIP Wealth”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). Registration with the SEC as a registered investment adviser does not imply a certain level of skill or training. For more information about BIP Wealth, please refer to our Form ADV, available at adviserinfo.sec.gov or upon request.

This commentary is intended for informational purposes only and does not constitute tax advice. Investors should seek tax advice based on their particular circumstances from an independent tax professional as laws are subject to interpretation, legislative change, and are unique to each individual's particular set of facts and circumstances.

© 2026 BIP Wealth. All rights reserved.