Quick answer
A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA, triggering tax now in exchange for tax-free growth and withdrawals later. Converting $40,000 in the 22% bracket costs $8,800 in tax; left to grow 20 years at 7%, that money becomes about $154,787 of tax-free value versus about $117,638 kept if a traditional withdrawal is taxed at 24%.
How the Roth IRA Conversion works, step by step
Enter your total traditional balance, the amount to convert, your tax rate today, your expected tax rate in retirement, the growth rate and the years until you spend the money. The simulator grows the converted amount tax-free and grows the unconverted amount, then taxes it at withdrawal, and shows the whole-balance totals for converting versus leaving everything traditional.
The net-benefit figure is the honest comparison, because it charges the conversion for the growth the tax payment would have earned. The $8,800 of tax paid today, invested at 7% for 20 years, would itself have become $34,053. After that charge, converting $40,000 wins by about $3,096 when the retirement rate is 24%, but loses by about $15,479 when it is 12% — the margin is far smaller than the headline gap suggests.
The conversion itself is a taxable event: the amount converted is added to your ordinary income for that year. Converting in a low-income year — after retiring, before Social Security and required distributions begin — can fill a low bracket cheaply. Converting on top of a full salary usually cannot. Convert in tranches across the year if you want to manage the tax bill against income you can only estimate.
The comparison assumes the conversion tax is paid from money outside the IRA. Paying the tax out of the converted amount shrinks what lands in the Roth and weakens the case, especially under age 59½, when the withheld portion can also count as an early distribution. If the tax has to come from inside the account, the conversion rarely wins.
Model the side effects before converting. Converted amounts count in modified adjusted gross income, which drives Medicare IRMAA premium surcharges two years later, the taxation of Social Security benefits, and eligibility for various credits. A conversion that is cheap on the income tax line can still be expensive overall. Conversions are also permanent since 2018 — recharacterisation was removed by the Tax Cuts and Jobs Act — and the pro-rata rule taxes conversions in proportion to your pre-tax share across all traditional IRAs.
The formula
Roth outcome = Converted amount × (1 + r)^t, with tax of (converted amount × today's rate) paid separately. Traditional outcome = Converted amount × (1 + r)^t × (1 − retirement rate). Net benefit = Roth outcome − (tax × (1 + r)^t) − traditional outcome.
Worked example — try it on the calculator above
Worked example: converting $40,000 with 20 years to grow
Convert $40,000 at a 22% rate today: the tax bill is $8,800, paid from savings. At 7% for 20 years, the Roth holds $40,000 × 1.07^20 ≈ $154,787, all withdrawable tax-free. Left in the traditional IRA, the same growth gives $154,787 before tax: keep $117,638 if taxed at 24% in retirement, or $136,213 if taxed at 12%. After charging the $8,800 tax payment for its lost growth ($34,053), the conversion wins by about $3,096 at a 24% future rate and loses by about $15,479 at 12%.
Frequently Asked Questions
When is the best time to do a Roth conversion?
In years when your taxable income is unusually low: early retirement before Social Security starts, a career break, or a year with large deductions. The window between retiring and required minimum distributions at 73 is the classic opportunity, because you control how much income to create, bracket by bracket.
Can I undo a Roth conversion?
No. Recharacterisation of conversions was removed by the Tax Cuts and Jobs Act — since 2018 a conversion is permanent. Convert in tranches across the year if you want to manage the tax bill against income you can only estimate.
Does a conversion affect Medicare premiums or other thresholds?
It can. Converted amounts count in modified adjusted gross income, which drives Medicare IRMAA premium surcharges two years later, the taxation of Social Security benefits, and eligibility for various credits. A conversion that is cheap on the income tax line can still be expensive overall — model the full picture, not just the bracket.
What is the pro-rata rule?
If you hold any pre-tax IRA money, a conversion is taxed in proportion to your pre-tax share across all traditional IRAs, not just the account you convert from. Holding a large pre-tax IRA makes 'convert only the after-tax part' impossible. Rolling pre-tax IRA money into a 401(k) first is the standard workaround.
Estimates, not advice. This calculator provides educational estimates based on the inputs you enter and the assumptions shown on this page. It is not financial, tax or investment advice, and it cannot see your full situation. Verify important figures against official sources, and consider a qualified professional for decisions about your own money. See our Disclaimer and Methodology.