Is It Wise to Convert 15% of My 401(k) Into a Roth IRA Each Year to Avoid Taxes and RMDs?

Converting retirement funds from a 401(k) into a Roth IRA offers the opportunity for tax-free growth and tax-free withdrawals in retirement, while also avoiding required minimum distribution (RMD) rules. However, a Roth conversion requires paying a significant tax bill up front. Often, this initial tax bill can be partially mitigated by gradually converting the 401(k) over time to keep yourself in lower tax brackets. However, the dynamics of a shifting portfolio and income over time, as well as a five-year withdrawal limitation on conversions, may make a Roth conversion inappropriate in some circumstances. When a Roth conversion does look like a winner, converting a fixed percentage each year may or may not be the best approach either.

Before embarking on a Roth conversion plan, consider talking it over with a financial advisor to determine if it makes sense for you.

Roth Conversion Strategies

Retirement funds in a 401(k) account are subject to federal income tax when withdrawn, and oftentimes state and local taxes, too. And because of RMD rules, savers with funds in tax-deferred retirement accounts such as 401(k) plans must begin withdrawing once they reach age 73. That can create a tax burden for some retirees.

Those disadvantages prompt many retirement savers to consider Roth conversions, which roll over funds from 401(k) accounts to Roth IRAs. Once in the Roth account, investment earnings and qualified withdrawals are both tax-free. Roth accounts are also not subject to RMD rules, which gives retirees better control over their retirement funds.

However, the upfront tax bill for a Roth conversion can be significant. Converted amounts are treated as ordinary income, so moving a large 401(k) balance into a Roth IRA can temporarily push even a moderate-income earner into a much higher tax bracket.

For example, consider a single filer earning $100,000 in 2026. At that income level, they would generally fall within the 22% marginal bracket and owe roughly $13,000 in federal income tax after the standard deduction. If that same individual converts $500,000 from a traditional 401(k) to a Roth IRA in one year, their taxable income would rise to approximately $600,000. That would place part of the conversion into the 35% marginal bracket and result in an estimated federal tax bill of roughly $173,000, increasing their liability by about $160,000 compared to a typical year.

Spreading the conversion over several years can help manage that tax impact. In 2026, a single filer with $100,000 of income could convert approximately $95,000 to $100,000 and remain largely within the 24% bracket, depending on deductions and other income sources. Doing so would likely produce a total federal tax bill in the range of $35,000 to $40,000 for that year, meaning the conversion itself would add roughly $20,000 to $25,000 in taxes.

As was done in this example, conversion strategies often get better results when based on dollar amounts and the effect on tax brackets rather than percentages of the 401(k) balance. In addition, conversion plans often incorporate flexibility, which allows savers to convert larger amounts, for instance, in years when their income is lower. In any case, conversion strategies are best tailored to individual savers’ unique circumstances. Consider matching with a financial advisor to discuss your strategy.

Roth Conversion Limitations

Roth conversions aren’t always the best move. For example, they hold less attraction for retirees who will be in a lower tax bracket after retirement. These retirees’ overall tax bills may be lower if they leave money in a 401(k) and pay taxes on withdrawals in retirement.

The conversion math also may not add up for savers who are near retirement and will need Roth funds to pay retirement expenses. That’s because converted funds can’t be withdrawn tax-free for five years after conversion. A financial advisor can help you weigh the pros and cons of doing Roth conversions based on your personal goals and circumstances.

Finally, Roth conversions may make less sense for someone who plans to donate or leave money to charity. That’s because charitable gifts and bequests from a 401(k) can escape taxation, removing one of the lures of conversion.

Frequently Asked Questions about Roth Conversions

What is a Roth conversion?

A Roth conversion shifts assets from a tax-deferred retirement account, such as a traditional IRA or 401(k), into a Roth IRA. The funds transferred are included in your taxable income for that year. After the money is in the Roth account, future qualified distributions can be taken free of federal income tax.

Is it better to convert all at once or gradually?

A lump-sum conversion simplifies the process but can generate a significant one-time tax bill. Gradual conversions may help manage tax brackets and spread the tax impact over multiple years. The best approach depends on income, age, tax outlook and overall retirement strategy.

Does a Roth conversion count toward required minimum distributions (RMDs)?

A Roth conversion does not satisfy your required minimum distribution. If you are required to take RMDs, you must withdraw the full RMD amount for the year before converting any additional funds. That required distribution cannot be rolled into a Roth IRA and is taxed as ordinary income. Only amounts exceeding your RMD are eligible to be converted.

Bottom Line

Converting 15% of a 401(k) in a Roth IRA each year could be an effective way to manage taxes and avoid RMDs. However, much depends on individual circumstances, and that strategy may not be the most efficient for many savers. Well-designed conversion strategies focus on dollar amounts and income tax brackets more than strict percentages. And Roth conversions may not make financial sense for people who are close to retirement, expect to be in lower tax brackets after retirement or plan to leave sizable legacies to charitable organizations from their 401(k) plans.

Retirement Planning Tips

Before starting to convert funds from a 401(k) to a Roth, talk the plan over with a financial advisor who can help you construct what-if scenarios and models to examine the likely outcomes of various approaches. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s RMD Calculator allows you to quickly and easily project the size of future mandatory withdrawals from tax-deferred retirement accounts.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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