Roth Conversion Calculator

Worked example

Converting $100,000 of pre-tax money at 24% costs $24,000 this year, paid from cash outside the IRA. Twenty years at 6.5% turns it into $352,365 with no tax left to pay. Leaving it alone gives $274,844 after 22% tax, plus $75,482 from investing the tax you did not spend — $350,327 in total. Converting wins by $2,038, and the rate at which the two are equal is 21.42%.

How to work it out yourself

1. 1.Pay the tax from money outside the IRA if you possibly can. Taking it from the conversion shrinks the balance that grows tax-free and usually turns a good conversion into a neutral one.
2. 2.Compare marginal rates, not average ones. The conversion is taxed on top of everything else you earn this year, so the rate that matters is the one on the last dollar.
3. 3.Watch what the extra income touches besides the bracket: Medicare IRMAA surcharges two years later, the share of Social Security that becomes taxable, and any ACA premium credit.
4. 4.A conversion made from 2018 onwards cannot be undone. Recharacterisation of conversions was repealed by the Tax Cuts and Jobs Act, so the decision is final on the day it is made.

What converting is worth, by retirement tax rate

Everything else held. The column that changes is the tax on the traditional balance; the Roth figure does not move because there is nothing left to tax.

The formula

1. Amount taxed as income this year100000 * 100 / 100
2. Tax due for the conversion year100000 * 24 / 100
3. What actually lands in the Roth
4. Roth at withdrawal, all yours100000 * 3.5236451
5. Traditional balance if you leave it100000 * 3.5236451
6. Traditional after tax at withdrawal352364.51 * (1 - 22 / 100)
7. The unspent tax money, invested instead24000 * 3.5236451
8. That side account after capital gains tax84567.482 - max(0, 84567.482 - 24000) * 15 / 100
9. Not converting, all in274844.31 + 75482.359
10. What converting is worth352364.51 - 350326.67
11. Retirement tax rate where the two are equal100 * (1 - (352364.51 - 75482.359) / 352364.51)
12. Tax paid per dollar converted24000 / 100000

Source: IRS — Roth IRAs, including conversions, IRS Publication 590-A — converting from any traditional IRA into a Roth IRA, IRS Publication 590-B — the additional tax on early distributions and the five-year rules

Questions people actually ask

How much tax will I pay on a Roth conversion?

The pre-tax amount converted is added to your ordinary income for the year and taxed at your marginal rate — there is no special rate and no capital-gains treatment. On $100,000 fully pre-tax at 24%, that is $24,000, due with that year’s return.

Is converting worth it?

It turns on one comparison: your tax rate now against your rate when you would have withdrawn. Above the break-even rate this page prints, converting wins; below it, leaving the money alone does. Paying the tax from outside cash moves the break-even down and is the single biggest lever.

Can I undo a conversion if the market falls?

No. Recharacterising a conversion was allowed until 2017 and the Tax Cuts and Jobs Act repealed it for conversions made from 1 January 2018. A conversion is final on the day it happens, which is why splitting a large one across tax years is the usual defence.

What is the five-year rule on a conversion?

Each conversion starts its own five-year clock. Withdraw converted principal before that clock runs out and before you are 59½, and the 10% additional tax applies even though the income tax was already paid. After 59½ the clock stops mattering for the penalty.

Related

• Roth IRA CalculatorWhat a Roth IRA grows to, how much of that balance is growth the IRS never taxes, and what the same money would be worth in a taxable account.
• Traditional vs Roth IRA CalculatorWhich IRA leaves you more after tax, comparing the deduction a traditional IRA gives now against the tax-free withdrawal a Roth gives later.
• Backdoor Roth CalculatorWhat a backdoor Roth costs once the pro-rata rule counts every traditional IRA you own, and what rolling the pre-tax money into a 401(k) first saves.
• RMD CalculatorThe required minimum distribution from a traditional IRA or 401(k), using the IRS Uniform Lifetime Table denominator for your age.
• Retirement CalculatorWhat your savings reach by retirement and how many years they last against the spending you plan, with inflation applied to both sides.
• 401(k) CalculatorWhat a 401(k) grows to, how much of it is the employer match, and whether your contribution rate leaves any of that match unclaimed.

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