For affluent families, deciding whether to convert a traditional IRA to a Roth IRA isn't just about retirement taxes. It can have significant consequences for your spouse, your children, and the wealth you ultimately leave behind.

Many successful investors spend decades building substantial retirement accounts. They contribute to 401(k)s, roll those accounts into IRAs, invest carefully, and allow their retirement savings to grow without paying income taxes along the way. It's an attractive arrangement—until the tax bill comes due.

For some families, the challenge isn't having enough money for retirement. It's figuring out how to withdraw or pass along a large retirement account without giving an unnecessarily large portion to the IRS.

That's where a Roth conversion can become valuable.

A Roth conversion allows you to move money from a traditional IRA into a Roth IRA. You generally pay income taxes on the amount converted today, but future withdrawals can be tax-free if certain requirements are met. The appeal is straightforward: Pay taxes now in exchange for potentially avoiding more taxes later.

But here's what often gets overlooked: A Roth conversion doesn't eliminate taxes. It changes when they're paid—and potentially who pays them. For wealthy families, that distinction matters enormously.

How a Roth conversion actually works

Let's start with a simple example. Suppose you have $2 million in a traditional IRA and decide to convert $200,000 into a Roth IRA.

Assuming the entire $200,000 is taxable and falls within your 24% federal income tax bracket, the conversion creates approximately $48,000 in federal income taxes. You now have $200,000 invested in your Roth IRA, but you've also incurred a $48,000 tax bill.

Ideally, you pay that tax using money outside your retirement accounts, allowing the entire $200,000 to remain invested in the Roth. From that point forward, the Roth assets can continue growing, and qualified withdrawals—including investment earnings—are free from federal income tax.

Unlike traditional IRAs, Roth IRAs also have no required minimum distributions during the original owner's lifetime. That means you aren't forced to withdraw money merely because you've reached a particular age. This combination of tax-free growth, withdrawal flexibility, and inheritance benefits makes Roth conversions especially interesting to investors who may never need all their retirement savings.

However, paying $48,000 in taxes today is a meaningful cost. That money could otherwise have remained invested, perhaps for decades.

The central question is whether the future benefits justify that upfront expense.

The biggest advantage: Paying taxes at a lower rate later

The strongest argument for a Roth conversion usually comes down to tax rates. 

Imagine a business owner who retires after years of earning $800,000 annually. During those working years, much of the owner's income was taxed at high marginal rates. But after retirement, before Social Security and mandatory retirement withdrawals begin, taxable income might decline considerably.

That creates an opportunity. Money converted during these lower-income years may be taxed at 22% or 24%, rather than the 32%, 35%, or 37% rates that might apply later.

Consider a married couple whose projected taxable income in 2026 is $300,000. Under the 2026 federal tax brackets, the 24% tax bracket for married couples filing jointly extends to $403,550 of taxable income. The couple could convert $100,000 of fully taxable IRA money and remain within that bracket, potentially paying approximately $24,000 in additional federal income tax, before considering other tax interactions.

Now suppose they convert $300,000 instead. That larger conversion pushes portions of their income into the 32% and 35% brackets. Under the same simplified assumptions, the additional federal income tax would be approximately $90,300. The lesson isn't that a $300,000 conversion is necessarily bad. It's that the tax cost of converting the last dollar can be substantially higher than the cost of converting the first dollar. 

In practice, smaller conversions spread over several years are often more attractive than converting a large retirement account all at once. A family might convert $75,000 one year, $125,000 the next, and nothing in a year when a large capital gain or business transaction already creates substantial taxable income.

Successful Roth conversion planning is often about controlling the size and timing of each conversion—not maximizing the amount converted.

Another advantage: Reducing future requirement withdrawals

Traditional IRAs come with an obligation many retirees would prefer to avoid: required minimum distributions, commonly called  RMDs. Under the current law, these mandatory withdrawals generally begin at age 73 or 75, depending on the account owner's birth year. The larger your traditional IRA, the larger those withdrawals may become.

Suppose a retired executive has a $3 million traditional IRA when required distributions begin. The initial required withdrawal could exceed $100,000 annually, depending on age and the applicable IRS calculation. As the executive grows older, the required percentage generally increases. Even if that executive doesn't need the income for living expenses, the withdrawal must still occur and is generally taxable.

Those distributions can create problems by increasing taxable income, raising Medicare premiums, and reducing flexibility over when taxes are paid.

Converting some IRA assets to a Roth before RMDs begin can reduce the size of future required withdrawals. For an affluent retiree who has ample income from investments, real estate, or other sources, that flexibility can be valuable.

Importantly, a Roth conversion doesn't make an existing RMD disappear. If you are already subject to required distributions, you must take the year's required amount before converting additional eligible IRA assets. The RMD itself cannot be converted.

The estate planning benefit: What happens when your children inherit an IRA?

This is where Roth conversions become particularly interesting for families with substantial wealth. Historically, many beneficiaries could stretch inherited IRA withdrawals over their life expectancies.

That is no longer the general rule.

Under the SECURE Act and subsequent IRS regulations, most adult children who inherit a traditional IRA must empty the account by the end of the tenth year following the owner's death. If a parent dies in 2026, for example, an adult child generally must empty the inherited IRA by December 31, 2036.

There is another important wrinkle.

If the parent died after reaching the required beginning date for RMDs, the child generally must also take annual required distributions during years one through nine, with the remaining balance withdrawn by year ten. If the parent died before that date, annual withdrawals generally aren't required during those first nine years, although the account must still be emptied by the deadline.

Special rules apply to surviving spouses, certain minor children of the deceased, beneficiaries who are disabled or chronically ill, and certain other qualifying beneficiaries.

For most financially successful adult children, however, the practical result is the same: An inherited traditional IRA can create a significant tax obligation during some of the highest-earning years of their lives.

A real world example: Two successful children inherit their parents' IRA

Imagine a couple leaves a $600,000 traditional IRA to their two adult children. Each child inherits $300,000. One is a 48-year-old attorney. The other is a 45-year-old corporate executive.

Both are already earning substantial incomes. If they spread their inherited IRA withdrawals across ten years, they would each withdraw an average of $30,000 annually, ignoring investment growth and the precise annual RMD requirements. Those withdrawals come on top of their salaries, bonuses, investment income, and other taxable income.

Assume, for illustration, that every inherited IRA dollar is taxed at a 35% federal rate. Each child would pay approximately $105,000 in federal income taxes on the $300,000 inheritance. Together, the children would pay approximately $210,000 in federal income taxes.

Now consider an alternative.

Suppose their parents had gradually converted that same $600,000 to a Roth IRA during retirement, with all conversions taxed at a 24% federal rate. The parents would have paid approximately $144,000 in federal income taxes.

At first glance, that's a $66,000 difference between the parents' conversion taxes and the children's eventual withdrawal taxes. But that isn't automatically $66,000 in family savings. The parents paid their taxes years earlier, and the money used for those taxes could otherwise have been invested and passed down. Investment growth, state taxes, changing tax brackets, and Medicare costs all affect the final comparison. Nevertheless, the example illustrates why Roth conversions can make sense even when parents don't expect to spend the Roth money themselves.

The relevant tax rate may not be the parents' retirement tax rate. It may be the children's tax rate during the ten years following the parents' deaths. And unlike the original IRA owner, an adult child who inherits a traditional IRA generally cannot simply convert that inherited IRA into their own Roth IRA afterward.

That planning opportunity largely belongs to the original account owner.

Why inheriting a Roth IRA can be much better

An inherited Roth IRA is also generally subject to the ten-year payout requirement for adult children. But its tax treatment is quite different. If the Roth IRA satisfies the applicable five-tax-year requirement, distributions to beneficiaries are generally free from federal income tax.

Furthermore, because inherited Roth IRAs are treated as though the original owner died before required distributions began, most adult children do not have to take annual withdrawals during years one through nine. 

That creates meaningful flexibility. A child who inherits a Roth IRA may be able to leave the entire account invested for much of the ten-year period and then withdraw the money tax-free before the deadline. The child cannot leave the account inside the inherited Roth indefinitely, but the tax-free treatment can make a tremendous difference.

There is one detail families should not overlook: The Roth IRA generally must satisfy a five-tax-year holding requirement before its earnings can be distributed tax-free. If the original owner first established a Roth IRA in 2026, qualified distributions of earnings generally could begin in 2031. An older existing Roth IRA may already satisfy this requirement.

For parents who want to leave retirement assets to financially successful children, these features can make Roth conversions particularly compelling.

Don't forget the surviving spouse

Estate planning isn't only about the next generation. For married couples, a surviving spouse may face a significant change in their tax situation. While both spouses are alive, they generally benefit from the wider income tax brackets available to married couples filing jointly.

After one spouse dies, the survivor will usually eventually file as a single taxpayer, assuming they do not remarry or qualify for another filing status. 

Yet household income may not decline proportionately. Investment income continues. Required IRA withdrawals may remain substantial. Some pensions and Social Security benefits may continue, although household benefits often change.

Consider a couple with $250,000 in annual taxable income. While married, much of that income may fall within the 24% federal bracket.

After one spouse dies, the survivor might have $200,000 of taxable income but face much narrower single-filer tax brackets. That can push a larger share of income into higher tax rates. A surviving spouse also generally has more favorable options for handling an inherited IRA than an adult child, including potentially treating the deceased spouse's IRA as their own. Nevertheless, future withdrawals can still create a substantial tax burden. 

Partial Roth conversions while both spouses are alive and filing jointly may reduce the amount of taxable IRA income the survivor faces later.

This is one reason a Roth conversion analysis should consider not only joint life expectancy, but also the financial consequences if one spouse lives another 15 or 20 years.

The hidden costs: Where Roth conversions can backfire

So far, the case for converting may sound attractive. But there are several situations where the math becomes less favorable.

 1. The conversion can push you into a higher tax bracket

A large conversion can turn an otherwise moderate-income year into an unusually expensive tax year. This is especially problematic after a business sale, the exercise of stock options, a large bonus, or the sale of appreciated real estate. If you're already paying a 35% or 37% federal tax rate, converting additional IRA assets may produce little benefit if you—or your heirs—would otherwise withdraw that money at substantially lower rates.

A conversion can also affect the taxation of Social Security benefits, deductions and credits, capital gains, and the 3.8% net investment income tax on certain investment income. The conversion itself is not subject to the net investment income tax, but it can increase the income measure used to determine whether other investment income is subject to that tax.

The full tax return matters—not just the bracket shown on a chart.

2.  Medicare premiums can rise two years later

This is one of the most common real-world surprises. Higher-income Medicare beneficiaries pay additional premiums for Medicare Parts B and D through a system called IRMAA. Medicare generally looks at income from two years earlier.

For example, 2026 Medicare premiums are generally based on income reported for 2024. In 2026, a married couple with modified adjusted gross income above $218,000 may face Medicare surcharges, based on those earlier income figures. Crossing just the first threshold can add $81.20 per person per month for Part B and $14.50 per person per month for Part D.

For a couple enrolled in both programs, that's approximately $2,297 in additional annual premiums. A Roth conversion completed in 2026 could similarly affect Medicare premiums in 2028, although the future income thresholds and surcharge amounts will differ.

Over time, conversions might reduce future Medicare costs by reducing taxable retirement withdrawals. But families should account for the temporary increases along the way.

3.  You're paying taxes earlier than necessary

Suppose you convert $500,000 and incur $175,000 in combined federal and state income taxes. That $175,000 leaves your investment portfolio immediately. If you had not converted, those funds might have stayed invested for many years. This is the opportunity cost of a conversion.

It is particularly important if your investment horizon is short, your future tax rate will be lower, or you must sell highly appreciated investments to pay the conversion tax. In general, a conversion is more attractive when you can pay the taxes from available cash or other suitable nonretirement assets without significantly disrupting your investment strategy.

4.  You're planning to move to a lower-tax state

Imagine a New York resident planning to retire to Florida in two years. Converting a large traditional IRA before moving could expose the conversion to state income taxes that might have been avoided by waiting, depending on applicable residency and state tax rules. The same IRA conversion may have very different results depending on where you live when it occurs.

5.  The market declines after you convert

Suppose you convert $400,000 of investments and pay taxes based on that value. Six months later, the investments are worth $280,000. You have now paid taxes on a conversion amount considerably higher than the current value of the assets. The market could recover, of course, but there is no guarantee.

And under current law, Roth conversions completed after 2017 generally cannot be reversed through a process called recharacterization. That's another reason gradual conversions may be more manageable than one very large transaction.

Roth conversions and estate planning: Which assets should your heirs receive?

For families with multiple types of assets, a Roth conversion shouldn't be analyzed in isolation. 

Consider a family with three major asset categories: traditional IRAs, Roth IRAs, and taxable investment accounts holding appreciated stocks or other investments. Each may be treated differently when inherited.

Traditional IRAs are often less attractive for high income heirs

Traditional IRA assets generally do not receive the same income tax basis adjustment at death as appreciated investments held in a regular brokerage account. The beneficiary inherits the retirement account along with its associated income tax obligation, subject to any existing after-tax basis and special deductions that may apply.

In other words, leaving a child a $1 million traditional IRA is generally not economically equivalent to leaving that child $1 million in cash. The IRA may carry a substantial future income tax liability.

Appreciated investments often receive favorable treatment at death

Suppose you purchased shares for $200,000 that are worth $1 million when you die. Under current law, assets included in your estate often receive an adjustment in cost basis to their value at death. Your heirs could potentially sell those inherited shares shortly afterward with little capital gains tax, assuming the sale price is close to the adjusted basis.

This favorable treatment generally does not apply to the untaxed portion of a traditional IRA.

That distinction matters when choosing which assets to spend, convert, give away, or preserve for heirs.

Trusts can complicate the picture

Many affluent families use trusts to protect inheritances from creditors, divorce, poor financial decisions, or other risks. But naming a trust as an IRA beneficiary can create unexpected tax consequences. The trust's wording may determine whether retirement distributions must be passed directly to beneficiaries or can remain within the trust.

A conduit trust generally passes IRA withdrawals through to its beneficiary. This may limit the protection the trust can provide, particularly if the entire inherited IRA must be withdrawn and passed through within ten years.

An accumulation trust may allow the trustee to retain the distributed assets, potentially providing greater protection and control.

The trade-off is taxation.

Certain trusts reach the highest federal income tax bracket much more quickly than individuals. In 2026, for example, a typical nongrantor trust reaches the 37% federal income tax bracket on taxable income exceeding just $16,000. A trust that retains substantial taxable IRA distributions could therefore face an extremely high income tax burden.

A Roth IRA can be particularly useful in this setting because qualified Roth withdrawals generally do not create federal income tax, even when received by a trust. However, inherited Roth assets still face applicable payout requirements, and the trust's terms determine what happens to those distributions afterward.

Families with existing trusts drafted before the SECURE Act should consider reviewing those documents with an estate planning attorney familiar with inherited retirement accounts. 

The best tax strategy is not necessarily the best asset-protection strategy. Both need to work together.

Charitable giving: Sometimes you shouldn't convert at all

One of the clearest cases against a Roth conversion involves assets ultimately intended for charity.

Suppose a wealthy couple has a $2 million traditional IRA and intends to leave $1 million of their estate to charitable organizations.

Converting the entire IRA may make little sense.

Why?

Because qualified charitable organizations generally do not pay federal income tax on IRA assets received as beneficiaries. If the couple converts $1 million intended for charity and pays significant income taxes today, they may be paying taxes that the charitable beneficiary would never have owed.

A potentially better approach is to designate traditional IRA assets for charitable beneficiaries while leaving Roth assets or appreciated investments to family members. For charitably inclined retirees age 70½ or older, qualified charitable distributions (QCDs) may offer another opportunity. A QCD allows an eligible direct transfer from an IRA to a qualified charitable organization without including the distribution in taxable income. It can also help satisfy required minimum distributions. Not every charitable vehicle qualifies for a QCD. Donor advised funds, for example, are generally excluded from receiving QCDs.

For families with meaningful philanthropic goals, the decision about which assets to convert and which to give away can be just as important as the conversion itself.

What about federal estate taxes?

It's important to distinguish income tax planning from estate tax planning. For 2026, the federal estate and gift tax basic exclusion amount is $15 million per individual. Married couples may be able to preserve a combined exclusion of up to $30 million through appropriate planning, including portability, depending on prior gifts and other factors. As a result, many affluent families will not owe federal estate tax. But they may still face substantial income taxes on inherited traditional IRAs. Those income taxes matter even when the estate is well below the federal estate tax threshold.

For families whose estates are large enough to face estate taxes, Roth conversions introduce another consideration. Both traditional and Roth IRAs are generally included in the owner's taxable estate. Simply converting an IRA does not remove its value from the estate. However, paying conversion taxes using assets that otherwise would have remained in the taxable estate can reduce the value of that estate. This may create an additional estate planning benefit.

The analysis becomes more complicated because inherited traditional IRA income may qualify for deductions related to estate taxes already paid. State estate taxes may also apply even when no federal estate tax is due.

For families approaching or exceeding estate tax thresholds, Roth conversions should be coordinated with broader estate, gifting, and trust planning rather than evaluated solely as an income tax strategy.

The practical approach: Convert strategically, not automatically

The biggest mistake in Roth conversion planning may be assuming that everyone with a large IRA should convert as much as possible.

That simply isn't true. A wealthy retiree in a high tax bracket, planning to leave most of the IRA to charity, may benefit very little from converting. Another retiree with a large traditional IRA, several years of relatively low income, and adult children in high-paying careers could benefit substantially. A third family might find that conversions make sense only up to a particular tax bracket each year.

The most useful analysis compares what happens under several approaches: making no conversions, making measured annual conversions, and converting more aggressively. That analysis should look beyond the immediate tax bill. It should consider projected retirement income, investment growth, future required distributions, Medicare premiums, state residence, the possible death of either spouse, and the expected tax situations of beneficiaries. It should also account for which assets are intended for living expenses, which will be left to children, which may remain in trusts, and which are earmarked for philanthropy.

In practical terms, executing a conversion also requires care. The tax professional should check for any after-tax IRA contributions that affect how much of the conversion is taxable, confirm that required distributions have been satisfied, and plan for withholding or estimated tax payments. Beneficiary designations should be reviewed alongside wills and trusts, because an IRA's beneficiary designation can control who receives the account regardless of what a will says. And conversions intended for a particular tax year generally must be completed by December 31—not by the following April tax-filing deadline.

These details are rarely glamorous, but overlooking them can undermine an otherwise sound plan.

The bottom line: Think beyond your own lifetime

For affluent families, Roth conversions can be more than a retirement tax-management strategy. They can be a way to reduce future mandatory withdrawals, protect a surviving spouse from higher tax rates, give heirs greater flexibility, and transfer wealth in a more tax-efficient form.

But they can also become an expensive mistake when conversions are too large, poorly timed, or inconsistent with the family's estate planning goals.

The best result is not necessarily the lowest tax bill this year—or even the lowest lifetime tax bill for the parents. It is the most favorable after-tax outcome for the family as a whole, considering how and when the wealth will eventually be used.

Before making a significant Roth conversion, consider a broader question: Would you rather pay the tax yourself today, or leave the tax obligation to someone else later—and which choice ultimately preserves more wealth?

For families with substantial retirement accounts, that may be one of the most consequential financial planning decisions they make.

This information is intended for educational purposes, and is not tax, legal, actuarial, or investment advice. It is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.