Partial Roth Conversion: How to Use It to Reduce Taxes in Retirement
For most of our working lives, we've been told to save, save, and save for retirement, and rightly so. But here's something that tends to get lost in all that talk about saving: all those years of diligently putting money into your traditional IRA or 401(k) could leave you with a hefty tax bill when it's finally time to enjoy your savings.
In fact, between required minimum distributions (RMDs), Social Security benefits, pensions, and other sources of retirement income, you could end up paying more in lifetime taxes than you anticipated.
You've worked hard for that money, so why pay more taxes than you have to?
That's where a partial Roth conversion strategy comes in. By strategically moving portions of your pre-tax retirement savings into a Roth account, you can reduce your future tax burden and gain greater control over your retirement income.
In this guide, I'll walk you through how partial Roth conversions work, their potential tax benefits, and strategies for deciding how much to convert each year so you can keep more of your hard-earned retirement savings.
What Is a Partial Roth Conversion?
A partial Roth conversion is a retirement tax strategy that involves transferring only a portion of your savings from a traditional retirement account, such as a traditional IRA or eligible pre-tax 401(k), into a Roth account.
Instead of converting your entire retirement account at once, as you would with a full Roth conversion, you choose how much to move. This allows you to:
Take advantage of lower-income years when you may be in a lower tax bracket.
Spread out the tax liability from Roth conversions over several years instead of facing one large tax bill.
Potentially avoid moving into a higher tax bracket by carefully planning your conversions around your annual taxable income.
Benefit from tax-free investment growth, as converted funds can grow tax-free within your Roth account.
Make tax-free withdrawals in retirement, since qualified Roth IRA withdrawals won't add to your taxable income.
Keep in mind that Roth conversions shouldn't be confused with regular Roth IRA contributions. Contributions involve putting new money into a Roth IRA, subject to annual contribution and income limits, whereas Roth conversions involve transferring existing retirement savings into a Roth account and aren't subject to those same limits.
Partial Roth Conversion Example
Imagine a married couple who both retire at age 65 with $5 million in retirement savings and investments, including $1.5 million in traditional IRAs.
With their employment income gone, they plan to delay Social Security and rely on their taxable investments for living expenses. Suppose their projected taxable income for 2026, after applicable deductions, is $64,500.
Since the 12% federal income tax bracket for married couples filing jointly extends to $105,700 in 2026, they have $41,200 of room remaining within that bracket.
They decide to make a partial Roth conversion of $41,200, taking full advantage of the remaining room within the 12% bracket. This brings their taxable income to $105,700 without pushing any of the converted amount into the 22% bracket.
Suppose they repeat this strategy annually for the next ten years, converting $41,200 each year. By the time they reach age 75, they would have transferred a total of $412,000 from their traditional IRAs into Roth IRAs, before accounting for investment returns.
Another way to see it: that's $412,000 in retirement savings they've moved out of accounts subject to lifetime RMDs.
Although investment gains and losses will affect their eventual account balances, these conversions can reduce the amount subject to mandatory withdrawals and the associated taxable income in retirement. Meanwhile, the converted funds can continue growing in their Roth IRAs, where qualified withdrawals are tax-free.
Total vs. Partial Roth Conversion: What's the Difference?
We've discussed how partial Roth conversions can help reduce your future taxable retirement income, and hopefully, the earlier example has put those benefits into perspective. Of course, you also have the option to convert your entire eligible traditional retirement account balance into a Roth account at once. This is called a full Roth conversion.
And it's not necessarily a bad idea. In fact, a full Roth conversion can be a worthwhile strategy if you have a relatively small traditional IRA balance or expect to face higher tax rates in the future.
However, remember that Roth conversions are taxable transactions. Any pre-tax amount you convert generally counts toward your taxable income for that year. The larger the conversion, the bigger your tax bill can become, especially if it pushes you into higher federal income tax brackets or triggers higher Medicare premiums through IRMAA.
Here's a side-by-side comparison to help you understand the trade-offs and determine which approach better suits your retirement circumstances.
Factor | Full Roth Conversion | Partial Roth Conversion |
Amount converted | Your entire eligible account balance moves into a Roth account at once. | You choose how much to convert and leave the rest in your traditional account. |
Tax bill today | A large conversion can mean a much higher tax bill in a single year. | Smaller conversions let you spread the tax cost across several years. |
Income tax brackets | A large conversion can push more of your income into higher tax brackets. | You can choose an amount that stays within your preferred tax bracket. |
Medicare premiums (IRMAA) | A large conversion can push your income above IRMAA thresholds, increasing future Medicare premiums. | You can limit the conversion amount to help avoid crossing IRMAA thresholds. |
Future RMDs | Eliminates future RMDs from the converted account if the entire balance moves into your own Roth IRA. | Gradually reduces the balance subject to future RMDs as you make conversions. |
When it makes sense | When your account balance is relatively small or paying the tax on the full amount today is advantageous. | When you want greater control over your annual taxes and prefer to convert retirement savings over several years. |
Benefits of Partial Roth Conversions for Retirement Planning
Reduce Future Required Minimum Distributions (RMDs)
Traditional IRAs and most pre-tax retirement accounts are subject to required minimum distributions (RMDs), which are mandatory withdrawals you must begin taking at age 73 or 75 (for those born in 1960 or later). These withdrawals are generally taxable as ordinary income, whether you need the money or not.
By converting portions of your traditional IRA into a Roth IRA, which has no lifetime RMDs for the original owner, you can reduce the balance used to calculate future mandatory withdrawals. This can mean smaller RMDs and less taxable income from those withdrawals during retirement.
Manage Your Federal Income Tax Bracket
Partial Roth conversions allow you to recognize taxable income strategically, particularly during the years after you retire but before you begin collecting Social Security or taking required minimum distributions (RMDs).
During this period, your taxable income may be lower than it was during your working years, giving you more room to make Roth conversions within a lower federal income tax bracket.
Rather than converting a large amount in one year and potentially pushing more income into higher brackets, you can spread conversions across several tax years. One approach is called tax-bracket filling, where you convert just enough to use the remaining room in your current tax bracket without unnecessarily crossing into the next one.
Give Yourself and Your Spouse More Tax Flexibility
Having money in a Roth IRA gives you another source of retirement income to draw from without increasing your federal taxable income, provided your withdrawals meet the requirements for tax-free treatment.
This flexibility can be especially valuable for married couples concerned about the widow's penalty. When one spouse passes away, the surviving spouse may eventually face narrower federal income tax brackets and lower Medicare IRMAA thresholds as a single filer.
Having Roth savings available can help the surviving spouse manage taxable withdrawals. Roth IRAs can also provide tax advantages for beneficiaries, since inherited Roth IRA distributions are generally tax-free once the applicable five-year requirement is met.
Partial Roth IRA Conversion Strategies to Consider
Deciding when and how much to convert to Roth is where the real planning begins. Here are four strategies worth considering based on your retirement timeline and tax situation.
Make Partial Conversions During Lower-Income Years
As mentioned earlier, the period after retirement but before you begin collecting Social Security benefits or taking required minimum distributions (RMDs) can be a favorable time to make partial Roth conversions. With less taxable income during these years, you may have more room within a lower federal income tax bracket to convert your retirement savings.
However, there are other circumstances when making partial Roth conversions may be advantageous:
During a year with reduced earnings: If you transition to part-time work, take an extended break from employment, or experience a temporary drop in business income, you may have more room to make Roth conversions at a lower tax rate.
In years with fewer taxable investment gains: If you realize fewer capital gains or receive less taxable investment income than usual, you may have additional room within your targeted tax bracket.
In years with unusually large tax deductions: If you have substantial deductible medical expenses or make a large charitable contribution, these deductions may reduce your taxable income and create additional room to convert retirement savings within a lower tax bracket.
Use the Tax-Bracket-Filling Strategy
Tax bracket filling involves converting enough of your traditional IRA to take advantage of the unused portion in a chosen federal income tax bracket, staying within that bracket and avoiding a higher marginal tax rate on the converted amount.
To apply it, estimate your taxable income for the year before any Roth conversion, then subtract that amount from the upper limit of your target tax bracket.
For example, say your projected taxable income is $80,000 and the upper limit of your chosen bracket is $120,000. You could convert approximately $40,000 ($120,000 − $80,000) without exceeding that bracket, assuming no other changes to your taxable income.
Keep in mind that Roth conversions can also affect Medicare IRMAA thresholds, the taxable portion of your Social Security benefits, and other income-based tax benefits. For this reason, it may be wise to convert slightly less than your calculated limit to leave room for unexpected income or changes in your tax situation.
Consider a Roth Conversion Ladder If You're Retiring Early
If you plan to retire before age 59½, a Roth conversion ladder can help you access your pre-tax retirement savings without paying the usual 10% early withdrawal penalty.
The idea is to work backward from your planned retirement date. Under IRS rules, each Roth conversion has its own five-tax-year waiting period for purposes of the early withdrawal penalty. Once that period has passed, you can withdraw the converted amount without the 10% penalty, even if you're still under age 59½.
For example, say you're 45 in 2026 and plan to retire at age 50 in 2031. You could start by converting $40,000 from your traditional IRA into a Roth IRA in 2026. By January 2031, that converted amount would be available for withdrawal without the conversion-related early withdrawal penalty, just as you're entering retirement.
If you convert another $40,000 in 2027, that amount would become available under the same rule in 2032, followed by your 2028 conversion in 2033, and so on.
By planning your conversions around when you'll need the money, you create a series of funds that become available for penalty-free withdrawal in successive years. Hence, the term ladder.
FAQs
How Often Can You Do a Roth Conversion?
You can make Roth conversions as often as you want within a tax year. You can either convert funds once per year or make several smaller conversions throughout the year.
Is There a Limit on How Much You Can Convert to a Roth IRA?
No, the IRS doesn't impose an annual dollar limit on Roth conversions. You can convert as much of your eligible traditional IRA or other pre-tax retirement savings as you want, regardless of your income. Unlike regular Roth IRA contributions, conversions aren't subject to annual contribution limits or income eligibility restrictions.
Can You Do a Partial Roth Conversion After RMDs Begin?
Yes, you can continue making partial Roth conversions even after you've reached the age when required minimum distributions (RMDs) begin. However, the IRS requires you to satisfy your RMD for the year before converting additional eligible funds. The RMD itself cannot be converted into a Roth IRA.
Plan Your Partial Roth Conversions With Smart Financial Lifestyle
As you've probably gathered by now, the decisions you make about your partial Roth conversions don't exist in isolation. They can affect everything from the taxes you pay on your Social Security benefits and your Medicare premiums to your estate plan and how much of your wealth you eventually pass on to your loved ones.
That's why it's important to look at the bigger picture before making a move. A well-planned conversion strategy can help you manage your lifetime tax burden while keeping your broader retirement goals in sight.
At Smart Financial Lifestyle, we can help you evaluate your options and develop a personalized retirement tax strategy based on your financial circumstances and long-term goals. Book a call to discuss how partial Roth conversions could fit into your retirement plan and help you keep more of the money you've worked so hard to save.
