Prasit photo | Moment | Getty Images
As the calendar winds down, some investors may be eyeing Roth individual retirement account conversions, depending on long-term goals. Experts say there’s good reason that now is the season for Roth conversions, with some exceptions.
The strategy transfers your pretax or nondeductible IRA funds to a Roth IRA to kickstart future tax-free growth. But the trade-off is you’ll owe upfront taxes on the converted balance.
Roth conversions are popular among younger retirees because they can often convert funds in lower income tax brackets than during their working years. Plus, earnings are typically reduced for retirees before claiming Social Security and starting required withdrawals.
There’s a reason year-end Roth conversions are popular: The strategy requires precise current-year income estimates, which can be more difficult before the fourth quarter. Conversions also often involve multi-year tax projections.
Tax uncertainty in 2025
Many provisions of the 2017 Tax Cuts and Jobs Act were initially set to expire at the end of 2025. That left investors unsure about future tax brackets before Republicans enacted President Donald Trump‘s “big beautiful bill” in July.
And now, many financial advisors are watching as Congress debates Affordable Care Act health insurance subsidies amid the government shutdown. The outcome is important for younger retirees considering a Roth conversion, since more income can impact eligibility for ACA premium subsidies.
Plus, many investors are still waiting for estimates for year-end mutual fund distributions, which typically hit brokerage accounts in November or December.
“This is why we do tax planning at the end of the year,” said Tommy Lucas, a certified financial planner at Moisand Fitzgerald Tamayo in Orlando, Florida. His firm is ranked No. 69 on CNBC’s Financial Advisor 100 list for 2025.
Some advisors argue it’s better to complete Roth conversions earlier in the year to start tax-free growth sooner. But others say early-year conversions can be a mistake before you have a solid estimate of current-year income.
“You have no idea what’s going to happen before December,” Lucas said.
Incurring more income than expected can be an issue because it could trigger phaseouts of other tax benefits.
Look for other Roth conversion ‘opportunities’
While many advisors wait until year-end for Roth conversions, there can be other times when the strategy makes sense, according to Tyson Sprick, a CFP and managing partner at Caliber Wealth Management in Overland Park, Kansas.
For example, some advisors leverage a market downturn to convert a smaller balance and pay less upfront taxes. Investors can then see tax-free growth in Roth accounts when the market recovers.
Sprick’s firm used this strategy amid tariff volatility earlier in 2025. For certain clients, they used about half of the year’s projected Roth conversions budget when the market dipped, with plans to finalize the remaining 2025 conversions in December.
“While we’re certainly not market timers or advocates of getting too cute, there are opportunities throughout the year,” he said.
Source link
