What Is a Roth Conversion and How Does It Work in Retirement?

A Roth conversion moves money from a traditional IRA to a Roth IRA, where it grows and comes out tax-free. Conversions work best when your current tax rate is lower than your future rate, which often happens between retirement and age 73.

The basic idea: A Roth conversion moves money from a traditional IRA (where you pay taxes when you withdraw) to a Roth IRA (where it grows and comes out tax-free). You pay income tax on the converted amount now, but that money is never taxed again -- not when it grows, not when you withdraw it, and not when your heirs inherit it.

When it makes sense: Conversions work best when your current tax rate is lower than your future rate. This often happens in early retirement -- after you stop working but before required minimum distributions begin at age 73. Your income is lower during those years, so the tax on the conversion is less than what you'd pay later.

What a CPA determines: Whether your situation favors converting, and if so, how much each year. It depends on your income, tax bracket, and projected future rates.

The tradeoff: Not everyone benefits. If your tax rate won't increase in the future, converting just accelerates a tax bill you'd otherwise spread out over time.