When Does a Roth Conversion Make Financial Sense?
A Roth conversion lets you shift money from a pre-tax retirement account into a Roth IRA. The trade-off: you pay taxes now in exchange for tax-free withdrawals later.
Done strategically, a Roth conversion can lower your lifetime tax bill, reduce required minimum distributions (RMDs), and give you more control over retirement income. But the benefits depend entirely on when and how you convert.
Let’s break down the situations where a Roth conversion makes the most financial sense—and how physician tax advisors help maximize the opportunity.
What Is a Roth Conversion and How Does It Work?
A Roth conversion is when you move money from a Traditional IRA or 401(k) into a Roth IRA. You’ll pay income tax on the converted amount, but after that, the money grows tax-free.
For example:
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You convert $50,000 from a Traditional IRA.
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That $50,000 is added to your taxable income this year.
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Once converted, it grows tax-free.
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You’ll owe zero tax on qualified withdrawals.
There are no income limits for conversions, and you can convert any amount. Just be aware of the tax impact.
More on the rules from the IRS overview of Traditional and Roth IRAs.
When Is the Best Time to Convert?
A Roth conversion makes the most sense when:
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You’re in a temporary low-income year.
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The market is down, and your account value is lower.
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You’re between jobs or early in retirement.
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You expect higher income or tax rates later.
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You can pay the taxes with cash, not retirement funds.
These moments offer the chance to shift funds at a lower cost.
If you’re transitioning to part-time work or building a new non-clinical side business, now may be the right time.
Will a Roth Conversion Save Me Money in Taxes?
That depends on the tax bracket you’re in now versus what you expect later.
If your current tax rate is lower than your future rate, you save money by paying taxes today. Roth IRAs also reduce taxable income in retirement and avoid RMDs, helping you stay in a lower bracket.
More insights from Investopedia’s take on Roth conversions.
How Much Tax Will I Owe?
The converted amount is added to your ordinary income and taxed accordingly.
Example:
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Current taxable income: $180,000
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Roth conversion: $40,000
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Total income for the year: $220,000
You’ll pay taxes based on your marginal rate. This could push you into a higher bracket unless planned carefully.
The key is to “fill up” the current bracket and avoid bumping into the next one. A physician tax advisor or accountant for physicians can help map this out.
For planning guidance, see IRS Publication 505.
Should I Convert If I’m Close to Retirement?
Yes—if you don’t need the money right away.
If you’re 60+ and not drawing Social Security or RMDs yet, conversions can still work:
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Reduce your RMDs later
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Create tax-free income streams
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Simplify estate planning
Timing becomes especially important for those looking to minimize taxes from a practice sale.
Should I Convert in a Low-Income Year?
This is often the best time to convert.
Reasons your income might drop:
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You took unpaid leave
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You changed jobs
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Your practice revenue dipped
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You just retired
Use this window to convert funds while staying in a lower bracket. You get tax-free growth in exchange for a lower upfront tax cost.
This article on market losses and tax-saving opportunities shows how downturns can enhance conversions.
Does a Roth Conversion Make Sense for High-Income Earners?
Yes, but it requires careful planning.
Even if you’re in the top bracket, partial conversions each year can be beneficial. You may also use the backdoor Roth IRA strategy to contribute indirectly.
If you’re a 1099 contractor or earning through multiple income streams, Roth conversions can help smooth future tax exposure.
More on optimizing structures in the Physician Tax Solutions S-Corp guide.
Can a Roth Conversion Help with RMDs?
Yes. Traditional IRAs and 401(k)s require RMDs starting at age 73. These are taxable and could increase:
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Your total income
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Medicare premiums
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Taxation of Social Security
Roth IRAs have no RMDs during your lifetime. That’s a major advantage.
Check IRS guidance on RMDs and their full RMD FAQ.
Also, visit our RMD strategy guide for more insight.
What Are the Long-Term Benefits of Paying Taxes Now?
Paying taxes now:
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Locks in current rates (especially before 2026 sunset of TCJA)
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Avoids forced RMDs
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Gives you tax-free income in retirement
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Helps you manage Medicare thresholds and Social Security taxation
If you’re planning retirement in a high-tax state, read our retirement planning guide for high state income taxes.
Are There Income or Contribution Limits?
There are no income limits for Roth conversions.
You can’t contribute to a Roth IRA if your income is too high, but you can still convert funds from a Traditional IRA using the backdoor method.
More from the IRS:
For those with varied revenue sources, see tax strategies for multiple income streams.
How Can a Tax Advisor Help?
A Roth conversion isn’t a quick decision—it’s a long-term tax strategy.
A trusted accountant for physicians or physician tax advisor helps you:
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Time the conversion across tax years
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Avoid Medicare surcharges
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Coordinate with practice income and business deductions
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Evaluate conversion opportunities alongside capital gains or practice transitions
You’ll also get guidance on the best tax structure for your practice.
FAQ: Roth Conversion
Q: Can I undo a Roth conversion?
A: No. Roth conversions are permanent and can’t be recharacterized.
Q: Do I have to convert the full balance?
A: No. You can convert partial amounts over several years.
Q: Will this affect my Social Security?
A: It can. Higher income from conversions may increase how much of your benefits are taxed.
Q: Are conversions subject to the 10% penalty?
A: No. You won’t owe the early withdrawal penalty on conversions, but withdrawing earnings too early from the Roth can trigger it.
Q: Is there a deadline?
A: Yes. Conversions must be completed by December 31 of the current tax year.
Final Thought
A Roth conversion makes financial sense when:
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You expect future tax rates to rise
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You have flexibility in your income now
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You can pay the tax with non-retirement funds
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You want to reduce future RMDs and secure tax-free growth
It doesn’t make sense when:
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You’re in your peak earning years
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You’d need to use IRA funds to pay the tax
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You’ll need the money within 5 years
A Roth conversion is most effective when part of a broader plan. Work with a physician tax advisor to tailor the strategy to your income, timing, and long-term goals.
Visit contact physiciantaxsolutions.com to schedule a consultation and learn how we can help you take control of your tax strategy today.
This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. physiciantaxsolutions.com assumes no responsibility for actions taken based on the information provided in this post.