Roth Conversion Optimiser (Pro) United States

What the Roth conversion optimiser does

Many people in the years before and just after retirement want to move money from a traditional IRA or 401(k) into a Roth account and need to decide how to space it out. The optimiser models the move as a series of equal annual conversions and reports the total tax, the total amount converted, the traditional balance that remains, and a year-by-year schedule.

It is a Pro tool. The projection is calculated on our server, and you see the headline results and the full conversion table.

Why the timing of a conversion matters

A traditional IRA or 401(k) holds pre-tax money, and every dollar you take out or convert is taxed as ordinary income. Convert a very large balance in one year and much of it can stack into higher brackets, raising the average rate you pay.

Spreading the same conversion across several years keeps each year's amount smaller, so more of it stays in the lower brackets you expect to occupy and the average rate falls. You choose the number of years and the amount per year, and the optimiser shows the resulting tax bill.

How the calculation works

The model starts with your traditional balance and works through one year at a time. Each year it grows the remaining balance at the annual return you set, then converts a fixed chunk, capped so you never convert more than is left. The chunk is multiplied by your marginal tax rate to give that year's conversion tax and is subtracted from the traditional balance.

Over the years you choose, the tool keeps running totals of the amount converted and the tax paid, and at the end it reports the traditional balance still remaining. A zero return shows the conversions on their own; a growth rate shows how the untouched balance compounds between conversions.

Reading the year-by-year schedule

For each year the schedule lists the amount converted, the tax on that conversion, and the traditional balance left afterwards. With no growth, the remaining balance steps down by the conversion amount each year. With growth switched on, you can see the balance being converted down and growing back up at the same time, which is why longer conversion windows are worth testing.

A worked example

Suppose you have a $500,000 traditional IRA, you plan to convert $50,000 a year for five years, your marginal rate is 24 percent, and you set the annual return to zero. Each year $50,000 is converted and taxed at 24 percent, which is $12,000 of tax per year.

Over five years that gives $250,000 converted to Roth, $60,000 of total conversion tax, and $250,000 still in the traditional account. The schedule shows the traditional balance stepping down from 450,000 to 400,000 to 350,000 to 300,000 and finally to 250,000. Change the marginal rate, the yearly amount or the number of years to compare plans.

Assumptions and limits

The optimiser applies a single marginal rate to every dollar converted in a year, while a real conversion can span more than one bracket; to be more precise, enter the blended rate you expect. It assumes a steady annual return, while real markets move unevenly. It does not model the knock-on effects of higher income, such as Medicare IRMAA surcharges, the taxation of Social Security benefits, or state income tax.

Use it to compare plans, not to predict exact outcomes. Test a cautious rate against an optimistic one, try different conversion windows, and look for a plan that still looks reasonable under the more conservative assumptions.

Planning the conversion years

The low-income years between leaving work and the start of required minimum distributions are often a good time for a multi-year conversion, as long as the tax is managed carefully. Update the plan each year as your income and tax rules change, and confirm the numbers for your actual accounts with a qualified tax professional who can account for your full situation.

This is general information only and not financial or tax advice.

About This Roth Conversion Optimiser

Use this Roth conversion optimiser to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.