Question 1

What is a Roth IRA conversion and why do it?

Accepted Answer

A Roth IRA conversion moves money from a Traditional IRA (pre-tax) to a Roth IRA (after-tax) by paying income tax on the converted amount in the current year. The benefit: all future growth and qualified withdrawals from the Roth are completely tax-free. Conversions make most sense when: (1) you are in a lower tax bracket now than you expect to be in retirement; (2) you have cash outside the IRA to pay the conversion tax (maximizes the benefit); (3) you want to avoid Required Minimum Distributions (RMDs), which Roth IRAs do not require; (4) you want to leave tax-free assets to heirs.

Question 2

How much tax will I pay on a Roth IRA conversion?

Accepted Answer

The converted amount is added to your ordinary income for the year and taxed at your marginal federal rate (10%-37%) plus state income tax. For example, converting $50,000 when your other income is $75,000 (single filer) puts $50,000 in the 22% and 24% brackets, resulting in approximately $11,000-$12,000 in federal tax. To minimize taxes, consider partial conversions over multiple years to stay within a lower bracket, or convert in years with unusually low income (career break, early retirement, business loss year).

Question 3

What is the Roth IRA conversion break-even period?

Accepted Answer

The break-even period is how long it takes for the tax-free growth advantage of the Roth to offset the upfront tax cost. It depends on: your current vs. future tax rate, investment return, and whether you pay conversion tax from inside or outside the IRA. If you pay tax from outside funds (recommended), break-even is typically 10-15 years for same-bracket conversions. If future tax rates are higher, break-even is shorter. If you pay tax from the IRA itself, break-even extends significantly because you are reducing the invested principal.

Question 4

What is the backdoor Roth IRA strategy?

Accepted Answer

The backdoor Roth is a workaround for high earners who exceed the Roth IRA income limits ($161,000 single / $240,000 MFJ in 2024). Steps: (1) Make a non-deductible contribution to a Traditional IRA (no income limit); (2) Convert the Traditional IRA to a Roth IRA. If you have no other Traditional IRA funds, the conversion is nearly tax-free (only earnings between contribution and conversion are taxed). The pro-rata rule applies if you have other pre-tax IRA funds -- the IRS treats all your IRAs as one pool when calculating the taxable portion of a conversion.

Question 5

Should I do a Roth conversion in 2024?

Accepted Answer

Consider a Roth conversion in 2024 if: (1) Tax rates are scheduled to increase -- the 2017 Tax Cuts and Jobs Act individual rate cuts expire after 2025, potentially raising rates in 2026; (2) Your income is temporarily lower this year (sabbatical, part-time work, business loss); (3) You have significant Traditional IRA/401k assets and expect to be in a high bracket in retirement; (4) You want to reduce future RMDs; (5) You have a long time horizon (10+ years) for tax-free growth to compound. Avoid conversion if you would need to sell investments at a loss to pay the tax, or if the conversion pushes you into IRMAA Medicare surcharge territory.

Horizon	Roth Value	Traditional Net	Roth Advantage
10 Years	$98,358	$73,768	+$24,589
20 Years	$193,484	$145,113	+$48,371
20 Years	$193,484	$145,113	+$48,371

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