When Is the Best Time to Do a Roth Conversion?

When is the right time to do a Roth conversion? It’s a question that comes up frequently, but the answer isn’t as simple as waiting for a particular tax rate or assuming that a Roth is always better than a traditional retirement account. In this episode, Greg Welborn of First Financial Consulting explains how to think about Roth conversions as one part of a broader retirement and tax-planning strategy. Greg begins by comparing the different places investors can hold their savings: Roth accounts, traditional tax-deferred retirement accounts such as IRAs and 401(k)s, and regular taxable investment accounts. The decision isn’t simply whether to use a Roth—it’s how each type of account fits into your overall financial plan. A Roth conversion generally involves moving assets from a traditional IRA, 401(k), or other eligible pre-tax retirement account into a Roth account. The taxable portion of the conversion is generally included in income in the year of the conversion. In exchange, future qualified withdrawals from the Roth may be tax-free. That creates one of the central questions in Roth conversion planning: Is it preferable to pay taxes today or potentially pay them later? Greg explains that comparing your current tax situation with the tax situation you expect in the future is an important part of that decision. If you expect to face significantly higher tax rates later, paying tax on a conversion today may be attractive. If you expect your future tax rate to be substantially lower, converting today may be less compelling. But tax rates aren’t the only consideration. The amount of time the assets can remain invested in the Roth can also matter. A longer investment horizon provides more opportunity for assets to compound within the Roth structure, which can increase the potential value of the tax-free treatment over time. The broader investment strategy matters as well. Different accounts can play different roles within a retirement plan, and decisions about what assets to hold in each account should be coordinated with your time horizon, liquidity needs, risk tolerance, future income needs, and overall tax strategy. Ultimately, Roth conversion planning is not a one-dimensional decision. The appropriate strategy depends on your current and projected income, future tax exposure, investment horizon, retirement income needs, and the other accounts and planning tools available to you. Rather than making a Roth conversion simply because tax rates appear attractive today—or avoiding one because you hope rates may fall—the decision should be based on how the conversion affects your overall financial plan over time. Topics discussed in this episode include: What a Roth conversion is Roth vs. traditional retirement accounts Paying taxes now versus later Current and future tax rates How investment horizon affects Roth planning Tax-free growth and qualified Roth withdrawals Roth conversions as part of retirement planning Coordinating taxable, tax-deferred, and Roth accounts Why Roth conversion timing is personal Lifetime tax planning Timestamps 00:12 — Why Roth conversion timing matters 00:42 — Roth, IRA, or taxable account? 01:40 — How a Roth conversion works 02:31 — Paying taxes now versus later 03:52 — Why your investment horizon matters 05:28 — Why Roth conversion decisions are personal 05:58 — Avoiding one-size-fits-all Roth advice Learn more about First Financial Consulting: Best order to Withdraw Assets for Retirees The information discussed in this episode is intended for educational purposes only and should not be considered individualized financial, investment, tax, or legal advice. Everyone’s financial situation is different, and the strategies discussed may not be appropriate for every investor. First Financial Consulting is an independent, fee-only fiduciary financial advisory firm providing comprehensive financial planning and investment management services.