Finance Maxxing
Retirement Accounts
Roth Conversion
Moving pre-tax retirement assets into a Roth account.
A Roth conversion transfers funds from a Traditional IRA or 401(k) to a Roth IRA. The converted amount is taxed as ordinary income in the year of conversion.
When Conversions Make Sense
| Scenario | Why It Works |
|---|---|
| Low-income year | Fill low brackets cheaply |
| Early retirement (before RMDs) | Convert before forced distributions |
| Market downturn | Convert depreciated assets → less tax |
| TCJA sunset prep | Lock in current low rates before 2026 |
| Large Traditional IRA balance | Reduce future RMDs |
Conversion Ladder
A popular early-retirement strategy:
- Retire with Traditional IRA/401(k) balance
- Convert a portion each year to Roth (stay in low brackets)
- After 5-year seasoning, access conversions penalty-free
- Continue until Traditional balance is optimally reduced
Important Rules
- No income limit on conversions (anyone can convert)
- 5-year rule: Each conversion has its own 5-year clock for penalty-free withdrawal (before age 59½)
- Pro-rata rule: If you have both pre-tax and after-tax IRA balances, conversions are proportionally taxed
- Conversions are irreversible (recharacterization eliminated after TCJA)
Sources
More in Retirement Accounts
401(k) / 403(b) / 457(b)
Employer-sponsored retirement plans with tax-deferred growth.
Traditional IRA
Tax-deductible contributions with tax-deferred growth.
Roth IRA
After-tax contributions with tax-free growth and withdrawals.
Health Savings Account (HSA)
Triple tax-advantaged: deductible, tax-free growth, tax-free withdrawals.
Traditional vs. Roth
Pre-tax now vs. tax-free later — depends on future tax rate.
Required Minimum Distributions (RMDs)
Mandatory annual withdrawals from pre-tax retirement accounts.
529 College Savings Plan
Tax-free growth for education expenses; state deductions may apply.