5 Roth Conversion Mistakes That Could Cost You

Converting pre-tax retirement savings into a Roth IRA might be smart for the right person at the right time. A Roth conversion may reduce future taxes, give you greater control over retirement income, and even support estate planning goals. Still, it can create an immediate tax burden, increase Medicare premiums, or result in long-term financial inefficiencies if not carefully planned.

Here are five of the most common Roth conversion mistakes — and how to avoid them — plus the foundational knowledge you need to make a confident, well-timed move.

5 Roth Conversion Mistakes That Could Cost You

#1: Converting too much in one year

One of the most common missteps is converting a large lump sum. While getting a large amount into a tax-free account sounds appealing, the result is often a spike in income that pushes you into a higher federal tax bracket. That can inflate your tax bill by thousands—and erase the long-term benefits you were hoping for.

A more nuanced approach is to convert enough each year to stay within a manageable tax bracket. For many people, the most efficient strategy is to spread conversions over several years, especially during periods of lower income, such as early retirement or a gap year between jobs.

#2: Using retirement funds to pay the tax

Let’s say you convert $50,000 from a Traditional IRA to a Roth IRA. If you use $12,000 from that same account to pay the taxes, you’ve not only reduced your overall retirement savings, but you may also trigger a 10% early withdrawal penalty if you’re under age 59½.

To get the full benefit of a Roth conversion, ensure you can cover the tax bill from outside savings or cash reserves. Otherwise, you might be undercutting the growth and compounding you’re trying to maximize.

#3: Ignoring the ripple effects of income-based charges

The tax cost of a conversion doesn’t stop with your 1040. Converting a large amount in one year can also push your income above thresholds that trigger other events, such as Medicare IRMAA surcharges. These surcharges increase your monthly Medicare Part B and D premiums and can take effect two years after your conversion.

Even if the Roth strategy makes sense on paper, it’s crucial to model how a higher modified adjusted gross income (MAGI) might affect other areas, like capital gains rates, Social Security taxation, or eligibility for tax credits. Thoughtful planning helps you manage these “stealth taxes” and keep more of your money working for you.

#4: Overlooking the five-year rule on converted funds

Many people don’t realize that each Roth conversion has a five-year holding period. If you withdraw converted funds before five years have passed, you could be penalized, even though you already paid taxes on the conversion itself.

This rule catches people off guard, especially those who plan to use the funds soon. To avoid penalties, only convert money you plan to leave untouched for at least five years.

#5: Going it alone without a strategy

Finally, perhaps the most costly mistake is not having a coordinated plan. Roth conversions don’t exist in a vacuum—they touch your entire financial life, from your retirement income plan to your estate strategy. Converting without modeling the long-term effects may result in missed opportunities or unintended consequences.

A trusted advisor or tax professional can help you run projections, stress-test your plan, and ensure your conversion fits a bigger picture that supports your goals for this year and the rest of your life.

What you need to know before you convert

At its core, a Roth IRA allows you to contribute after-tax dollars in exchange for tax-free growth and tax-free withdrawals in retirement. Unlike traditional IRAs, Roth IRAs don’t require minimum distributions (RMDs), giving you more flexibility over how and when you use your money.

A Roth conversion moves money from a Traditional IRA or pre-tax 401(k) into a Roth IRA. When you do this, the amount you convert counts as ordinary income for the year. You’ll pay taxes up front, but the money grows, and you will have tax-free withdrawals as long as you follow the rules.

So, when’s the best time to convert?

The sweet spot is often after retirement but before RMDs begin. Though any year where your income temporarily dips offers an opportunity. Converting during these low-income years allows you to take advantage of lower tax brackets and minimize the tax cost of the conversion.

If you expect higher future tax rates, or have large pre-tax balances and want to lower RMDs or leave more tax-efficient assets to heirs, consider a Roth conversion.

Final Thought: Precision over speed

Roth conversions can be a powerful tool, but they require precision: timing, tax modeling, and coordination with the rest of your financial life. The right strategy won’t just reduce taxes — it will give you more flexibility and control over how you live and how your assets grow in the years ahead.

Avoid these five common mistakes, seek guidance when needed, and take action aligned with your goals, not just your gut.

This content is for informational and educational purposes only and should not be construed as individualized advice or a recommendation for any specific product, strategy, or course of action. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication. This material is not intended to, and does not, create a fiduciary relationship under ERISA or any other applicable law. For individualized advice tailored to your specific circumstances, please consult with your adviser.