Roth Conversions: A Framework for Affluent Retirees

By Joseph Zappia, Co-Chief Investment Officer

Roth conversions are often sold as “tax-free growth,” a move with no apparent downside. That framing is incomplete, and for retirees with substantial IRA assets, conversion decisions based on incomplete framing can be very costly. This piece examines the specific conditions under which a conversion pays off for affluent retirees in high-tax states.

The Math Most People Get Wrong

Converting a traditional IRA to a Roth produces the same after-tax wealth as leaving it alone whenever two conditions hold: the tax rate paid on the conversion equals the rate that would have applied at withdrawal, and the conversion tax comes out of the IRA itself. Holding those two factors constant, taxing the seed and taxing the harvest land the dollars in the same place. It’s just arithmetic.

So, equivalence is the starting point, not the answer. A conversion creates value only by breaking one of those conditions, and there are three reliable ways to do so. Find one or more in a client’s situation and a conversion can be powerful.

The Three Sources of Roth Advantage

The first source is tax rate arbitrage: a conversion pays off when the client’s rate today is lower than the rate that would apply at withdrawal. For many affluent households, that window opens on its own. Between retirement and the start of RMDs at 73 (or 75 for those born in 1960 or later), wages have stopped and Social Security may not have started — taxable income often falls to its lowest level in decades. That gap, frequently four to ten years wide, is the conversion window. Miss it, and RMDs stack on top of Social Security, pushing income up a bracket where it tends to stay.

The second source is the same tax rate arbitrage, measured against the heirs’ rates instead of the client’s. Under the SECURE Act, most non-spouse heirs must empty an inherited IRA within ten years, with many cases requiring distributions along the way. Consider a Rochester family whose adult children are physicians or attorneys: the IRA empties directly into their peak earning years, and New York piles on for any heir who stays in-state. An inherited Roth runs on the same ten-year clock, but every dollar comes out tax-free. This is where many conversions earn their keep, not as an income play but as an estate tool.

The third is the funding source, which gets missed in almost every analysis I read: where does the money to pay the conversion tax come from? Paid out of the IRA, the conversion is neutral: absent rate arbitrage, nothing is gained. Paid from low-yielding cash, the math improves because dollars that would have generated taxable income are effectively moved inside the Roth’s tax shelter. Paid by selling appreciated stock, the capital gains bill often eats the benefit. This one choice can swing the long-run outcome of a conversion by double digits over a multi-decade horizon.

The more of these sources present, the stronger the case. With none, the equivalence math from the start of this piece applies in full: there is nothing to gain, only tax paid early and IRMAA risk taken for free.

Bear Markets Can Be the Execution Signal

A $1 million IRA drops 25% to $750,000. By itself, that is not necessarily a reason to convert, since the equivalence math explained above is indifferent to market levels. What changes is efficiency. Tax brackets and IRMAA thresholds are set in dollars, so the same dollar budget now converts a larger fraction of the account: a client converting $200,000 a year gets 20% of the account through at a $1 million value, but 27% at $750,000. Same tax bill, but a larger share converted, and any recovery then compounds tax-free inside the Roth.

Two cautions worth noting: the benefit assumes a recovery, and since 2018 a conversion cannot be undone. A drawdown tells a client with a standing conversion plan to execute. It tells a client without one nothing.

The Estate Tax Most Advisors Skip

For estates large enough to face estate tax, traditional IRA dollars get hit twice: estate tax on the gross balance (a $1 million IRA counts as $1 million in the estate, though the heir nets far less), then income tax on every withdrawal. Section 691(c) lets the heir deduct the federal estate tax attributable to the IRA. It blunts the double tax, but doesn’t erase it (and only applies if federal estate tax was actually paid).

Assume a 40% marginal rate: that $1 million IRA carries ~$400,000 of built-in income tax. For a high earner in New York City, 40% may be light — above ~$1.1 million of income, federal, state, and city rates stack past 50%, and ten years of required inherited-IRA distributions land on top of peak salary. Converting during the client’s life pays that tax now (from other assets). The cash leaves the estate for good and the heir inherits a Roth with no income tax attached.

New York sharpens the case further. Section 691(c) offsets federal estate tax only. New York’s estate tax gets no offset at all; an estate more than 5% above the $7.35 million NYS exemption (as of 2026) is taxed on the full estate value. With the federal exemption now at $15 million, an estate can owe New York tax while owing nothing at the federal level. No federal tax, no 691(c) deduction. A second tax layer with nothing to soften it.

The IRMAA Trap

Medicare runs on a two-year income lookback. A conversion in 2026 sets Part B and Part D premiums in 2028 for both spouses. The brackets are cliffs, not ramps. One dollar over a line can cost thousands of dollars per year. And each conversion year drives one premium year, so a multi-year plan must clear the brackets every year, not just once.

This is where planning breaks most often. The client models the income tax, converts, then opens a premium notice two years later wondering what happened. The fix is mechanical. Run the conversion against the IRMAA brackets first. Then size it under the line, or take the surcharge on purpose. What not to do is find out in 2028. It is not a tax decision in isolation. It is a tax, healthcare, and estate decision at once.

A Practical Framework

The costs so far all fit in a spreadsheet. Then there is the one cost that does not: a conversion asks a client to write a large check now, by choice, for a benefit that lands years later. One that works is quietly good. One that misfires — tax paid early and then an IRMAA surcharge nobody warned about — is loudly bad. The downside is asymmetric. So the bar should be high, and the assumptions should be the advisor’s problem, not the client’s surprise.

I do not think in certainties, but in probabilities. Nobody knows future tax rates, a client’s lifespan, or the market’s path. That uncertainty cannot be erased, but the odds can be tilted. Every factor here is a tilt: a low-rate window, an estate tax exposure, a funding source with low opportunity cost, a drawdown to execute into. None of them decides the case alone, but line up enough in the same direction and the odds move in the client’s favor. That is when to convert.

A Roth conversion is a tax timing decision inside a larger plan. For most affluent retirees, the honest answer is some, not all, and not all at once. Good conversions are done gradually, with measured tranches, sized against specific bracket and IRMAA lines, executed across a multi-year window. A large one-time conversion is usually a sign nobody finished the analysis.

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Frequently Asked Questions

Should I do a Roth conversion in 2026?

Only if one or more of the three sources of value are present. It comes down to your current bracket, your expected future bracket, what the money is for, and where the tax payment comes from.

How does a Roth conversion affect Medicare premiums?

Income above the IRMAA thresholds raises Medicare Part B and Part D premiums for both spouses, starting two years after the conversion. The brackets are cliffs, not ramps.

Do Roth conversions reduce estate taxes?

They can, for estates above the exemption thresholds. The estate tax is calculated on the full IRA balance, not the after-income-tax amount. Paying the income tax through a conversion removes those dollars from the taxable estate. A federal deduction under Section 691(c) softens the double tax for heirs, but only for federal estate tax actually paid. New York’s estate tax gets no such offset, which strengthens the case for prepaying in New York.

Should I do a Roth conversion during a market downturn?

A drawdown is often the best time to execute a conversion that’s already justified. The same dollar budget converts a larger share of the account, and any recovery happens inside the Roth, tax-free.

Are Roth conversions worth it for high-net-worth families?

The strongest case is estate planning under the SECURE Act ten-year rule, especially when the heirs are in high-tax states or their peak earning years.

Do Roth conversions make sense in New York State?

For some retirees yes, for others no. New York’s state tax raises the cost of every converted dollar, but it does not kill the strategy when the federal arbitrage and the estate case are large enough.

What is the risk of doing a Roth conversion?

The real risk is paying tax early for a benefit that does not materialize, then compounding it with a missed detail like an IRMAA surcharge. And since 2018, conversions cannot be undone. Nobody can be certain about future rates. The discipline is to convert only when enough factors line up to tip the probability in your favor.

What is the biggest Roth conversion mistake?

Executing without modeling the IRMAA impact first. A close second is paying the conversion tax out of the IRA itself, which forfeits one of the main sources of benefit.

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Sources:

26 U.S.C. § 691(c). https://www.law.cornell.edu/uscode/text/26/691
Centers for Medicare & Medicaid Services. (2025, November 19). Medicare program; Medicare Part B monthly actuarial rates, premium rates, and annual deductible beginning January 1, 2026. Federal Register. https://www.federalregister.gov/documents/2025/11/19/2025-20251/medicare-program-medicare-part-b-monthly-actuarial-rates-premium-rates-and-annual-deductible
New York State Department of Taxation and Finance. (n.d.). Estate tax. https://www.tax.ny.gov/pit/estate/etidx.htm
N.Y. Tax Law § 952. https://www.nysenate.gov/legislation/laws/TAX/952
One Big Beautiful Bill Act, Pub. L. No. 119-21 (2025). https://www.congress.gov/bill/119th-congress/house-bill/1
Required Minimum Distributions, 89 Fed. Reg. 58886 (July 19, 2024) (codified at 26 C.F.R. pts. 1, 31, 54). https://www.federalregister.gov/documents/2024/07/19/2024-14542/required-minimum-distributions
Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, Pub. L. No. 116-94, div. O, § 401 (2019). https://www.congress.gov/bill/116th-congress/house-bill/1865
SECURE 2.0 Act of 2022, Pub. L. No. 117-328, div. T, § 107 (2022). https://www.congress.gov/bill/117th-congress/house-bill/2617
Tax Cuts and Jobs Act, Pub. L. No. 115-97, § 13611 (2017) (amending 26 U.S.C. § 408A(d)(6)). https://www.congress.gov/bill/115th-congress/house-bill/1

This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Opinions expressed herein are based on economic and market conditions at the time this material was written, and do not necessarily reflect the views of LVW Advisors. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. The views expressed are those of the author and they do not constitute investment advice or a recommendation to buy or sell any security. Figures referenced are drawn from third-party research and reflect data stated as of varying dates in late May and early June 2026. Past performance is not indicative of future results.