One of the frequent questions I get is: “What’s the difference between a Roth contribution and a Roth conversion?” While both involve Roth IRAs, they serve very different purposes and follow distinct rules.
Roth Contributions: Limited by Income and Eligibility
A Roth contribution refers to putting new money into a Roth IRA from earned income. But this option comes with several restrictions:
Income Limits: If your income exceeds the IRS threshold, you may be ineligible to contribute directly to a Roth IRA.
Earned Income Requirement: You must have earned income to make a contribution.
Annual Contribution Limits: For 2025, you can contribute up to $7,000 ($8,000 if age 50 or older), subject to income and filing status.
Roth Conversions: Flexible, but Taxable
A Roth conversion allows you to move funds from a pre-tax retirement account—such as a traditional IRA or 401(k)—into a Roth IRA. Here's what makes it different:
No Income or Contribution Limits: Anyone, regardless of income, can convert.
No Age Restrictions: You can convert at any age.
Taxable Event: The converted amount is treated as ordinary income in the year of conversion.
Tax-Free Growth: Once converted, your money grows tax-free, and qualified withdrawals are also tax-free.
Why Roth Conversions Become More Important Near RMD Age
As you approach Required Minimum Distribution (RMD) age—currently 73, and 75 starting in 2033 for those born in 1960 or later—your tax liability increases if you hold a sizable balance in a traditional IRA. RMDs are mandatory and taxed as ordinary income, which can push you into a higher bracket and reduce tax efficiency of your retirement income.
A Roth conversion can help manage this by reducing your future RMDs, thus lowering your taxable income in retirement. It also gives you more control over how and when you take distributions.
Should You Convert? Ask Yourself These 5 Key Questions
1. When Will You Need the Money?
If you plan to use the funds soon, a Roth conversion might not be ideal. Paying taxes upfront and pulling funds shortly afterward reduces the benefit of tax-free growth.
But if you don’t need the money in the near term, converting allows your investments to compound tax-free for decades.
2. How Will You Pay the Tax?
A Roth conversion results in a tax bill. To maximize the benefit, you should pay the taxes using funds from outside your retirement account. Using retirement assets to cover taxes reduces the amount that can grow tax-free and may trigger penalties if you're under age 59½.
3. What Do You Expect Future Tax Rates to Be?
If you think your tax rate will be the same or higher in retirement, converting now at a lower rate can save you money in the long run.
On the other hand, if you expect your income—and tax bracket—to drop significantly, it might be better to wait and convert later at a lower rate.
4. Other Good Reasons to Convert
You might want to convert if:
You have favorable tax offsets this year (charitable deductions, tax credits, or carry-forward losses).
You want to eliminate or reduce RMDs starting at age 73.
You’d like to continue making contributions past age 73 (if you have earned income).
You’re aiming to leave your heirs a tax-free inheritance.
5. Reasons Not to Convert
A Roth conversion may not be the right choice if:
You’re uncomfortable paying taxes upfront.
You’re skeptical that Roth accounts will remain tax-free long-term.
You intend to leave your IRA to a charity, which won’t pay taxes on the inheritance anyway—making conversion unnecessary.
If you’d like to explore whether a Roth conversion makes sense for your situation, or if you want to discuss strategies to reduce your tax bill in retirement a conversation with a financial planner might be the smartest next step.