What is the best Roth conversion strategy?

The best Roth conversion strategy for most investors is a multi-year, bracket-filling approach: convert enough each year to fill a lower tax bracket without spilling into the next one, ideally during the window between retirement and the start of required minimum distributions (RMDs).

This window is widely considered the prime opportunity for Roth conversions. Once earned income drops in retirement but RMDs have not yet begun at age 73 or 75, your taxable income is often at its lowest point. Converting gradually during these years lets you recognize income at today's lower rates rather than paying higher rates later when RMDs, Social Security, and investment income combine to push you into a higher bracket. To calculate your conversion room each year, estimate your projected taxable income, subtract it from the top of your target bracket, and convert up to that difference. Many advisors suggest filling the 22% to 24% brackets as a practical target for middle-to-upper-income households.

A few secondary considerations can materially change the optimal amount to convert each year:

• Medicare IRMAA surcharges: Higher Modified Adjusted Gross Income can trigger premium surcharges for Medicare Part B and D. Cap your annual conversion at the lower of your bracket ceiling or the relevant IRMAA threshold.
• Tax rate outlook: If current tax rates are expected to rise, converting sooner captures the lower rate.
• Funding the tax bill: Paying the conversion tax from non-IRA funds, rather than withholding from the conversion itself, preserves the full compounding benefit of the Roth account.

If your IRA holds privately held business interests, LLC interests, or other illiquid assets without a publicly traded price, establishing a defensible Fair Market Value before conversion is a critical step. You can explore how that appraisal process works, or use the IRA Conversion Tax Calculator to model the cost and benefit of a conversion for your specific situation.