The Best Time to Start a Financial Plan is Now
Welcome to Roth-tober
Should You Carve Out a Roth Conversion This Year?
by Tricia Bush, CPA, CFP®
CPA, CFP® Owner, AAA Advisory LLC
October isn’t just about pumpkins, costumes, and candy—it’s also the time of year many in the financial world lovingly call “Roth-tober.” Why? Because it’s often the perfect season to consider a Roth conversion before the calendar year wraps up.
If you’re picturing accountants and advisors in vampire capes saying “convert before year-end, mwahaha!” …well, you’re not entirely wrong. But let’s take the spooky out of it and explain what a Roth conversion is, who it might help, and how to approach it wisely.
What Is a Roth Conversion?
A Roth conversion means moving money from a tax-deferred retirement account (like a traditional IRA or 401(k)) into a Roth IRA. The catch? You pay taxes now on the converted amount. The benefit? Once in the Roth, the money grows tax-free, and qualified withdrawals in retirement are also tax-free.
Think of it like trading Halloween candy with your sibling: you give up a few chocolate bars today (taxes now) to get a lifetime stash of Reese’s that no one can tax later.
Why Consider a Roth Conversion?
Tax-Free Withdrawals Later. A Roth IRA lets you withdraw both contributions and earnings tax-free in retirement.
No Required Minimum Distributions (RMDs). Traditional accounts force withdrawals at age 73. Roth IRAs don’t, which means more flexibility.
Estate Planning Benefits.Beneficiaries generally inherit Roth IRAs tax-free, which can be a big plus for families.
Who Might Benefit?
Professionals in a Low-Income Year
Example: Alex is a 38-year-old marketing manager who usually earns $120,000 but is taking a year off to stay home with a new baby. With much lower income this year, Alex can convert a portion of a traditional IRA at a discounted tax rate.
Retirees in the “Tax Valley” Years
Example: Bob retired at 63 and is living off savings until Social Security and required distributions kick in. His income is temporarily low—prime time to convert at favorable rates.
Those Planning to Move to a Higher-Tax State
Example: Susan lives in Florida (no state income tax) but plans to retire in California (high state tax). Converting while she’s still in Florida could save her thousands.
Who Might Not Benefit?
High Earners at Their Peak
If you’re earning $400k+ and paying today’s top tax rates, converting may be more expensive now than in retirement.
Those Without Cash to Pay the Taxes
Covering the tax bill from IRA funds reduces the benefit. Ideally, you should use other savings.
Those Close to Needing the Funds
Withdrawals of converted money are subject to a five-year waiting period. If you’ll need the money soon, a conversion could backfire.
The Goal of a Roth Conversion
At its core, the goal of a Roth conversion is simple.
Convert money from pre-tax accounts when you expect to be in a lower tax bracket today than in the future when distributions are required.
If today’s tax bill is cheaper than tomorrow’s, a Roth conversion may be the treat you’re looking for.
How to Approach a Roth Conversion (Roth-tober Style)
Step 1: Compare Your Current vs. Future Tax Rate
Estimate your federal and state brackets now, and project what they might look like in retirement. If you’re moving, don’t forget that state tax rules can be dramatically different.
Step 2: Find the “Sweet Spot”
Determine how much you can convert without bumping into the next tax bracket. Sometimes the most efficient move is to convert just enough to “fill up” your current bracket.
Step 3: Run the Numbers
Use tax projection software—or better yet, work with a CPA or financial planner—to model how much you can convert without triggering unpleasant surprises.
Step 4: Watch for Side Effects
Because conversions raise your income, they can have ripple effects.
Social Security taxation. More income may make a bigger portion of your benefits taxable.
Medicare IRMAA. Higher income can mean higher Part B and D premiums.
Maryland Senior Credit. For Maryland residents, higher AGI could reduce or eliminate credits.
Federal Senior Credit Limits. New thresholds could phase you out.
Other Credits/Deductions. Child tax credit, earned income credit, or education deductions could be impacted.
Step 5: Execute the Conversion
Call your custodian (Fidelity, Vanguard, Schwab, etc.) and request a Roth conversion. Decide whether to do it all at once or spread it out over several years—many prefer the “drip approach” to avoid bracket creep.
Final Thoughts
Roth conversions aren’t spooky once you understand them, but they aren’t automatic either. The right timing can save you thousands in lifetime taxes. The wrong timing? Well, that’s a horror story you don’t want to live through.
So this Roth-tober, don’t just carve pumpkins—carve out some time to see whether a Roth conversion makes sense for you. And remember, you don’t have to go it alone. A CPA or financial advisor can help you crunch the numbers and decide whether now is the trick…or the treat.
Disclosure: This article is for educational purposes only and should not be considered tax, legal, or investment advice. Individual circumstances vary, and tax laws are subject to change. Before making any decisions regarding Roth conversions or other tax strategies, consult a qualified tax professional or financial advisor.
