Why Some Financial Pros Favor This Tax Bracket for Roth IRA Conversions
If there’s one strategy financial advisors keep bringing up, it’s converting to a Roth IRA before retirement. The “before retirement” part is usually stressed. It appears that the window to make such a conversion work in your favor is usually pretty small, and your tax bracket holds the key to whether it’s worth it or not.
Why Advisors Like the 12% and 24% Brackets
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To understand the “why,” let’s clarify what a Roth IRA conversion is.
A Roth IRA conversion means moving money from a pre-tax account like a traditional IRA or 401(k) into a Roth, where it grows tax-free and doesn’t come with required minimum distributions. The catch is that you have to pay income tax on the converted amount in the year you make the switch. And that’s where things get interesting.
Your tax bracket decides how much you pay. Pay too much up front, and it might take too long to make that tax hit worth it. Pick the right bracket, though, and it’s one of the most powerful moves for long-term growth.
According to many financial planners, conversions within the 12% tax bracket are usually a no-brainer. If you’re in that range, it’s like converting your savings during a sale. You’re paying the lowest rates possible for the chance to grow your money tax-free for years. It makes sense that the 12% bracket is limited. Single filers capped out at $47,150 in taxable income for 2024.
Then there’s the 24% bracket. It’s obviously not as sweet as its better half (quite literally), but it’s often where more people realistically land. For single filers, this bracket was up to $191,950 in 2024. Financial advisors say this is often the ceiling for conversions that still make sense. Beyond it, you risk walking into the 32% bracket, where the tax hit starts to feel like too much. That’s when it can take decades for the tax-free growth to make up for the upfront cost. Some planners say if you’re hitting 32% or more, you’re better off leaving those funds where they are or spreading conversions out over time.
Timing Makes a Big Difference
The idea isn’t just about how much to convert, but when. Income fluctuations may not be great in a larger context, but they create short-term windows where a Roth conversion fits neatly under the ceiling of a lower bracket. People who retire early, switch jobs, or pause work for caregiving often find themselves in a lower-income year. That’s prime conversion time.
Another thing to consider is market dips. If your retirement portfolio temporarily drops in value, converting while values are down means paying taxes on a smaller amount. The converted assets then move into the Roth, and if they recover, you get that growth tax-free. It’s a steal, paying taxes on the sale price and keeping the full future upside.
Spreading conversions out over several years also makes the move more affordable. Instead of taking a giant tax hit in one year and jumping into a higher bracket, smaller annual conversions keep the taxes more manageable. You might stay under the 24% line this way, which can mean thousands saved in taxes over time.
Consider Broader Financial Plans
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Income in retirement won’t look like your paycheck did. Social Security, part-time work, and rental income are all going to count. Keeping taxable income low in retirement is a common goal, and a Roth IRA makes that easier. Unlike traditional IRAs or 401(k)s, Roth IRAs don’t require withdrawals starting at age 73.
For high earners who aren’t eligible to contribute directly to a Roth, the so-called backdoor Roth strategy works through conversions. It’s a workaround that lets them fund a Roth using nondeductible contributions to a traditional IRA and then convert it. Again, tax brackets matter. Convert too much too fast, and the strategy backfires.
Federal taxes get most of the attention, but state taxes still apply in many places. If you live in a state with income tax, tack that on top of your federal bill. It can change whether a conversion is worth it.
Also, large conversions could bump you into higher Medicare premium tiers or reduce eligibility for tax credits. Some retirees are surprised to find that their Roth conversion increases healthcare costs or affects other parts of their financial plan. Advisors usually recommend reviewing these ripple effects before moving large balances.
The best tax bracket for a Roth conversion isn’t the same for everyone. But most advisors seem to agree on one thing: staying in the 12% or 24% bracket is often where the benefit outweighs the cost. The exact number will depend on income, location, retirement age, and other assets, but these two brackets come up again and again.
What the Math Looks Like
Say someone converts $100,000 in one go and lands in the 24% federal bracket. That’s $24,000 in federal tax. Add a 5% state tax, and they’re handing over $29,000 total. But if they break that $100,000 into chunks, say $25,000 per year for four years, they stay entirely in the 12% bracket each year. That could trim thousands off their total tax bill, $12,000 to be precise, because the total tax paid is now $17,000. Less money paid to the IRS means more left in the Roth to grow untouched.
The longer the timeline before retirement, the more appealing this becomes. A 50-year-old planning to retire at 65 has time for Roth assets to grow. If they convert a portion each year under the 24% bracket, and that money doubles over 15 years, all that growth is tax-free in retirement. That’s hard to beat.
But if someone waits too long or earns too much, the cost of conversion can outweigh the benefit. Paying 32% or more on a big balance to convert it might not pay off unless you’re planning for a huge estate or suspect tax rates are going up significantly.
The Bottom Line
Roth IRA conversions are about smart timing, realistic income planning, and understanding how your bracket fits into the picture. If you’re in or near retirement, the decision might be less about growing wealth and more about managing future tax bills. If you’re still working but expect a drop in income soon, that’s a prime time to make a move.
The 24% bracket has become the sweet spot for many people. It’s high enough to get meaningful assets moved over, but still low enough to keep the tax cost under control. And if you can stay in the 12% range, it’s even better. The whole point is avoiding the kind of tax decisions that sting later.