When does a Roth conversion actually pay off?

The first time I sat down to decide whether to convert part of my own pre-tax savings to Roth, I did what most people do: opened a spreadsheet, typed in a few guesses, and stared at the answer without trusting it.

The question sounds simple — is it worth paying tax now to avoid tax later? — but the answer hides inside two numbers most of us can only guess at: your tax rate today, and your tax rate years from now when you'd actually withdraw the money. I built a free calculator to settle it for my own numbers. But before you use it, here's the one rule that decides nearly every case.

The only rule that matters

A Roth conversion pays off when your tax rate at withdrawal is higher than your tax rate today. That's it. Everything else — growth rate, how much you convert, how many years it has — is detail.

Think of $100,000 sitting in a traditional IRA. You have two choices:

• Don't convert: it grows for years, then you pay tax on the whole pile at your future rate.
• Convert: you pay tax on the $100,000 now at today's rate — the converted amount is included in your gross income for the year, taxed as ordinary income (see the IRS's Topic no. 309) — and the rest grows tax-free from here on.

If your rate is the same both years, the two choices tie — the math washes out exactly (try it in the calculator: set both rates to 24% and watch the difference go to zero). If your future rate is higher, converting wins. If today's rate is higher, converting loses. Growth rate and time don't change that verdict — they just scale how much is at stake either way.

A worked example with real numbers

Say you're 60, you won't touch the money until 75, you convert $100,000, and you assume 7% annual growth. Over 15 years at 7%, that $100,000 becomes about $275,903 either way — the only question is who gets taxed on it, and when.

Notice the symmetry: the same $100,000, the same 15 years, the same 7% growth — and the verdict flips entirely on which rate is higher. That's the whole game, as long as the tax bill comes out of the conversion itself.

Does it matter how you pay the tax bill?

A little — enough to flip a verdict, not just move it. Both examples above assumed the tax gets withheld from the conversion, so only the after-tax amount ever lands in the Roth. Pay that bill from savings outside the IRA instead — money that's already been taxed once — and the full converted amount grows tax-free. That sounds like it should just win by whatever the tax bill would've grown to, but a fair comparison has to charge for what that outside money gives up by being spent early.

Here's the part that isn't obvious: unlike the IRA, that outside money's principal is never taxed again either way — only its own future growth would be, and only if you'd left it invested. Spending money that was never fully exposed to tax in the first place, to eliminate tax on money that otherwise would be, is a genuinely good trade. Run the same two households through the calculator with "outside savings" selected instead of the default, and here's what changes:

Look at Case 2: the rate spread alone said don't convert. Paying from outside savings flips it to a win — not a rounding artifact, a real structural edge, because the money funding the tax bill was never going to be fully taxed to begin with. The calculator's "Does it matter how you pay the conversion tax?" section has the full derivation and formula, plus a toggle so you can check both ways against your own numbers.

The honest part

Most Roth conversion calculators are built to sell you on converting. They bury the assumptions, hide the math, and always seem to land on "yes, convert!"

I built ours the other way. The first thing I wanted it to do was talk you out of a bad conversion. Run the numbers above — 24% now, 22% later — and it tells you plainly: converting would cost you an estimated $5,518. No signup, no email wall, no "talk to an advisor" gate. Just the number.

What does the simple version miss?

The calculator is deliberately simple — seven inputs, one verdict. Real life has more traps:

• IRMAA brackets: a conversion that pushes your income $1 over a threshold can cost you over $1,000 a year in extra Medicare premiums, per person.
• RMDs: the whole reason your future rate might be higher is that required minimum distributions force large withdrawals starting at 73 or 75.
• ACA subsidy cliffs: if you retire before 65, a big conversion year can wipe out thousands in health insurance subsidies — the same cliff that makes early retirement's "bridge years" so easy to misplan.

None of those fit in a seven-input calculator. They're exactly what Runway's full planner models — year by year, against your real brackets, IRMAA tiers, and RMD schedule, not a single flat snapshot.

But start with the simple question. If the simple math says don't convert, the complicated math rarely disagrees. And if it says convert — well, now you know it's worth running the full plan.