What are your thoughts on Roth conversions if you are in the highest tax bracket and plan to be there moving forward?
-Joel
If you ask some financial professionals, the answer to this question might be a resounding no, and the discussion would be over. But there are arguments for doing Roth conversions, even if you are in the highest tax bracket.
In fact, there are specific instances where converting at the highest tax rates makes sense. And they are worth considering. (If you need help managing your retirement accounts, consider working with a financial advisor.)
Advantages of Using Roth Conversions in the Highest Tax Bracket
Ask an Advisor: I’m in the Highest Tax Bracket, Should I Do a Roth Conversion?
Consider these three advantages of using a Roth conversion, even when you’re in the highest tax bracket.
Taking Advantage of Relatively Low-Income Tax Years
This is the most common focus of planning for Roth conversions. The idea is that relatively low-income years, often thought of as the years between retiring and taking Social Security or required minimum distributions (RMDs), generate an opportunity to intentionally pay taxes.
For younger earners, this could also be thought of as converting (or contributing) to Roth before your earnings increase as your career progresses.
Removing Tax Uncertainty
If a taxpayer is concerned that tax rates could go up in the future, converting to a Roth takes tax rate changes out of the equation. The tax code is written in pencil, and Congress has the power to change it at any time and in any way it decides.
Nobody knows what tax laws will be in place in a few years, especially with the expiration of provisions of the Tax Cuts and Jobs Act in 2025. So if your concern is that tax rates will go up, converting to Roth now, in some ways, protects you from those potential increases.
Creating Tax Flexibility
A Roth can give you the flexibility to have funds available when you need them without fretting over the tax consequences. (If you need help with the tax consequences of your investment decisions, consider working with a financial advisor.)
When Would It Make Sense for a Roth Conversion in the Highest Tax Bracket?
Ask an Advisor: I’m in the Highest Tax Bracket, Should I Do a Roth Conversion?
The most clear-cut instance of Roth conversions making sense in the highest bracket is for taxpayers at a level of income and wealth where they can reasonably expect to be in the highest tax brackets throughout their lives. Tax rates may rise in 2026 and are currently at historical lows. For taxpayers already in the highest bracket who expect to always be there, converting to a Roth is a way to pay the devil we know instead of waiting to find out what the devil we don’t know will look like in the future
The uncertainty of tax rates in the future may be more painful than the check you’d have to write today.
This comes down to personal preferences and expectations for the future. By converting to a Roth in anticipation of tax rates significantly rising in the future, you are taking a risk to remove the IRS as a debt holder on your wealth.
If rates don’t go up in your lifetime or even go down in the future (whether because Congress changes the rates or you end up with lower income in the future), you could certainly end up paying more in taxes than if you did not convert.
It is important to make these decisions with as much information and context as possible. No one can guarantee what tax rates will be in the future. (If you need help managing the tax implications of your retirement decisions, consider working with a financial advisor.)
Next Steps
Whether you are in the highest tax bracket or any other, tax planning is most effective when you are thinking about the long term. Converting to Roth always means paying more in tax this year than you otherwise would have. So for a conversion to make sense, it has to be part of a longer-term plan.
The benefits of a conversion are typically recognized over time, not in the year of the conversion. The most successful Roth conversion strategies are going to be ones that are intentional and focused on multi-year planning.
Tips
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.
Ask an Advisor: If I Have a Tax-Deferred 401(K). Can I Convert It to a Roth IRA Without Paying the Deferred Taxes When I Roll It Over?
If I have a tax-deferred 401(k). Can I convert it to a Roth IRA without paying the deferred taxes when I roll it over?
-Tommy
Generally, the answer here is no. There’s typically no method to totally dodge taxes on a Roth conversion. Eventually, Uncle Sam will come to collect on your tax-deferred retirement accounts – either when you execute a Roth conversion, withdraw funds or collect your required minimum distributions (RMDs).
That said, your inability to totally dodge taxes doesn’t translate to an inability to reduce them. Here are some savvy strategies to reduce your tax bill on a Roth conversion. (For more information on taxes and retirement, consider working with a financial advisor.)
Strategies to Reduce Your Tax Bill on a Roth Conversion
Ask an Advisor: If I Have a Tax-Deferred 401(K). Can I Convert It to a Roth IRA Without Paying the Deferred Taxes When I Roll It Over?
To reduce the tax consequences of rolling a tax-deferred account to a Roth, consider these methods:
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Roll Over Your Money in a Low-Tax Year
For many folks, a prime time for Roth conversions takes place during the years after retirement but before Social Security and RMDs kick in. Those can be relatively low-income years during which initiating a conversion can result in a triple benefit. Those benefits are: lower tax bills, reduced RMDs and future tax-free growth.
Speaking of timing, if you suspect tax rates will increase at the anticipated sunset of the Tax Cuts and Jobs Act or due to political machinations on Capitol Hill, making a Roth conversion now can be an option.
You’ll lock in your current tax rate and hopefully ride out any future increases. Keep in mind that nobody has a crystal ball, and this strategy involves making predictions about the future. (For more information on how tax policy may impact retirement planning, consider working with a financial advisor.)
Pay the Tax Wisely
Many experts recommend paying the tax on your Roth conversion with nonretirement assets. That’s opposed to withholding some of your retirement funds to pay the bill. This will allow you to move the greatest amount into your new Roth account and continue to watch it grow tax-free.
Work With a Financial Advisor
A financial advisor may be able to help you take a holistic look at your tax and retirement profile, identifying opportunities to minimize taxes while adhering to an investment philosophy that matches your life stage.
A good advisor can talk you through whether a Roth conversion makes sense right now. He or she can also discuss alternatives, such as converting your 401(k) into a traditional IRA, transitioning to a new employer’s 401(k) or making a partial conversion.
Tips for Handling Taxes in Retirement
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Susannah Snider, CFP® is SmartAsset’s financial planning columnist and answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Susannah is not a participant in the SmartAdvisor Match platform and is an employee of SmartAsset.
I am 48 years old. I made $310,000 last year and I currently have $546,000 in my retirement plan at work. My husband is on disability and doesn’t work and does not have a 401(k) plan. I wanted to open a Roth IRA but I read that I make too much money. What options do I have to save more money for retirement? I’m debt-free except for my mortgage, which I’m trying to get rid of in the next two years before my daughter goes to college. What would you advise?
– Nilda
Navigating retirement account rules can be confusing and frustrating, making it seem harder to save as much as you want to. You already have a solid foundation to build on, and more options than you might realize to beef up your savings.
Even though you have a workplace plan, you can still contribute to a traditional IRA, though your contribution would be non-deductible. You can also create and contribute to a spousal IRA for your husband. And while you make too much money to directly contribute to a Roth IRA, you may be able to contribute through a backdoor Roth IRA.
As for your mortgage, if your interest rate is lower than 4%, it might be worth not making extra payments and either saving or investing that money instead. High-yield savings accounts, for example, currently yield around 5%. One-year certificates of deposit (CDs) are even paying up to 5.5%, or more. Remember, just because savings or investments aren’t in an official tax-advantaged retirement account doesn’t mean you can’t use them to fund your retirement.
A woman reviews her IRA and workplace retirement plan balances.
Anyone can contribute to both a workplace plan and a traditional IRA, but your contribution may not be deductible, depending on your income.
You can contribute up to $6,500 ($7,500 if you’re 50 or older) to an IRA for 2023. If neither you nor your spouse are covered by a workplace retirement plan, your contributions will be deductible.
However, if you or your spouse has a workplace retirement plan like a 401(k), that contribution may be only partly deductible or completely non-deductible. Even if you can’t take a current tax deduction for your contribution, you’ll still get tax-deferred growth in the account. The growth and earnings will be taxed when you take withdrawals in retirement.
Another plus: Having money in the IRA gives you the option of converting it to a Roth IRA. (And if you need help planning out your Roth conversion, talk it over with a financial advisor.)
The deductibility you might have depends on your household income and filing status:
Single or Head of Household Covered by Workplace Plan
If you are single or the head of your household and have a workplace plan in 2023, IRA contributions are:
Married, Filing Jointly and You Have a Workplace Plan
If you are married, file jointly and have a workplace plan in 2023, IRA contributions are:
Married, Filing Jointly and Your Spouse Has a Workplace Plan, But You Don’t
If you are married, file jointly and have a spouse with a workplace plan in 2023 (but you do not), IRA contributions are:
Create and Fund a Spousal IRA
In general, you have to earn income in order to contribute to an IRA. The exception is if you have a spouse who works and earns enough to cover two IRA contributions. You can open a spousal IRA for the nonworking spouse. A spousal IRA gives your family a chance to double down on retirement savings.
Despite its name, a spousal IRA is no different than a regular IRA in how it’s set up or its tax benefits. It’s not a joint account, either. Only the nonworking spouse owns this IRA. To qualify for a spousal IRA, you have to use “married filing jointly” as your income tax filing status, though.
The same contribution limits for Roth IRAs and deductibility limits for traditional IRAs apply the same way they would for any retirement account. Traditional spousal IRAs are also eligible for Roth conversions. (And if you have more questions about spousal IRAs, consider matching with a financial advisor.)
Is a Backdoor Roth IRA Right for You?
A couple sets up a spousal IRA on a laptop.
Roth IRAs come with a few beneficial twists that make them desirable for many taxpayers. For one thing, as long as you follow the rules, all withdrawals – including growth and earnings – are completely tax-free. For another, you don’t have to take required minimum distributions (RMDs), so your money has more time to grow.
Unfortunately, Roth IRA contributions are subject to income limits, locking many people out of them. For 2023, single filers earning $153,000 or more and married filing jointly filers earning $228,000 or more can’t contribute to Roth IRAs.
That’s where the backdoor Roth comes into play. This conversion process allows higher earners the opportunity to move money sitting in their traditional IRAs into Roth IRAs. (And if you need help setting up a backdoor Roth, talk it over with a financial advisor.)
The process is pretty simple. If you don’t already have a Roth account set up, you’ll create one. You tell your IRA administrator that you want to convert all or a part of your traditional IRA to a Roth IRA. You fill out some paperwork, and the administrator handles the rest.
Some other caveats to keep in mind:
There’s a special pro rata tax rule requiring that you have to consider all of your traditional IRAs as a whole, both pre-tax and after-tax contributions, to determine how much tax you’ll owe on the conversion. You can’t pick and choose which IRA money you want to convert.
That said, the tax-free withdrawals in retirement may be well worth all the potential complications.
Bottom Line
You can increase your retirement savings by contributing to an IRA and a spousal IRA even if you have a workplace plan. You can also create tax-free retirement income streams by converting some of your retirement funds to Roth IRAs.
Tips for Finding a Financial Advisor
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Michele Cagan, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Michele is not a participant in the SmartAdvisor Match platform, and she has been compensated for this article.
