Roth Conversion Ladders: Why Fall is Prime Planning Time
Why Fall may be the sweet spot for your most important retirement tax decision
As the leaves start to change, there's another kind of transformation you should be thinking about: converting some of your traditional retirement accounts to Roth IRAs. If you're a high earner with substantial pre-tax retirement savings, the months of September and October presents a unique window of opportunity that savvy wealth builders shouldn't ignore.
The Conversion Tax Reality
First, let's be crystal clear about what happens when you convert funds from your traditional retirement accounts to Roth IRAs: you pay income tax now on every dollar you convert. Convert $100,000 from your traditional 401(k) to a Roth IRA, and that $100,000 gets added to your taxable income for the year. If you're in the 32% tax bracket, that conversion costs you $32,000 in federal taxes (plus state taxes in most states).
This isn't a tax-free transaction—it's a strategic tax timing decision. You're choosing to pay taxes now, at today's rates, to avoid paying taxes later when you withdraw from the Roth IRA. The bet you're making is that paying taxes now will cost you less than paying them in retirement, either because your tax rates will be higher later or because the tax-free growth in the Roth IRA will more than offset the upfront tax cost.
The stakes are real: get the timing or amount wrong, and you could push yourself into higher tax brackets, trigger additional taxes like the Net Investment Income Tax, or even increase your future Medicare premiums. But get it right, and you can save tens or even hundreds of thousands in lifetime taxes while creating tax-free income for retirement.
Understanding Roth Conversion Ladders
Think of a Roth conversion ladder like building a staircase to tax-free retirement income. Instead of making one massive conversion that could push you into higher tax brackets, you systematically convert portions of your traditional IRA or 401(k) over multiple years. Each conversion creates a new "rung" on your ladder - and crucially, each rung becomes accessible tax-free after five years.
This approach is particularly powerful for early retirees or those planning a bridge strategy to Social Security. For example, let’s say you're 55 and planning to retire at 60. By starting conversions now, you'll have tax-free access to those converted funds when you turn 60, 61, 62, and beyond—well before you can tap Social Security or traditional retirement accounts without penalties.
The value of this strategy lies in the systematic approach. Rather than gambling on a single large conversion, you're spreading both the tax cost and the risk across multiple years, while building a foundation of tax-free income for your future.
The September Advantage
Why September? By this point in the year, you have nine months of actual income data, giving you a sense of clarity and confidence about where you'll land tax-wise for the year. This visibility is key when you're trying to "fill up" a tax bracket without spilling into the next one.
Here's a concrete example: Let's say you're married filing jointly, and through September, your combined income (salary, bonuses, investment income, etc.) totals $300,000. You expect another $50,000 in income for the remaining three months, putting your projected annual income at $350,000.
The 24% tax bracket for married couples filing jointly goes up to $394,600 in 2025, while the 32% bracket starts at $394,601. This means you have roughly $44,600 of "room" left in the 24% bracket ($394,600 - $350,000 = $44,600).
So you could potentially convert up to $44,600 from your traditional IRA to Roth and pay just 24% in federal taxes on that conversion. Convert $44,000? You pay 24% on all of it. But convert $50,000? You'd pay 24% on the first $44,600 and 32% on the remaining $5,400—a significant jump that you want to avoid unless it's intentional.
September gives you the data and time to make this calculation accurately, rather than guessing in January or scrambling in December.
There's also a market timing opportunity to consider. If your portfolio has taken a hit during the year, September conversions let you convert more shares at lower prices. When those investments recover inside your Roth IRA, all that growth becomes tax-free. It's like buying future tax savings at a discount.
Plus, you still have time to coordinate with other year-end strategies. Need to harvest some losses to offset conversion taxes? Want to bunch charitable giving into this year? September gives you the planning runway to orchestrate these moves together.
Strategic Implementation Approaches
The Bracket-Filling Strategy
This approach maximizes conversions within your current tax bracket. Using our earlier example, if you have $44,600 of room left in the 24% bracket, you'd convert exactly that amount—no more, no less. The goal is to consistently "fill up" your current bracket each year without triggering higher rates.
This works particularly well for people with relatively stable incomes who can predictably make similar conversions year after year. You're essentially dollar-cost averaging your way out of traditional retirement accounts at known tax rates.
The Income Timing Strategy
This approach focuses on converting more in low-income years and less (or nothing) in high-income years. For example, if 2025 is a sabbatical year or you're between jobs, you might convert enough to fill the 12% and 22% brackets entirely - you’d still be converting at a savings given you’re normally in the 32% tax bracket.
Alternatively, in a year when you exercise stock options or sell a business, you might skip conversions entirely to avoid pushing income into even higher brackets. Essentially: Do bigger conversions in years when you have little other income, because you'll pay much lower tax rates on the conversion. This strategy requires more planning but can result in significant tax savings by timing conversions around income volatility.
The Roth Bridge Strategy
Designed for early retirees, this approach creates a "bridge" of accessible Roth funds between retirement and age 59½ (when penalty-free access to traditional accounts begins). You systematically convert amounts you'll need for living expenses, timing each conversion to become accessible when you need it.
For example, if you retire at 55 and need $80,000 annually, you'd convert $80,000 each year for five years. Each conversion becomes penalty-free after five years, providing your living expenses at ages 60, 61, 62, 63, and 64—bridging you to Social Security and penalty-free traditional account access.
The Legacy Optimization Strategy
This approach prioritizes Roth conversions specifically for wealth transfer benefits. Since Roth IRAs don't have required minimum distributions during your lifetime and provide tax-free inheritance for heirs, this strategy converts assets you don't expect to need personally.
The focus is on moving your largest growth assets to Roth accounts, where future appreciation becomes tax-free for your heirs. This often means larger conversions and higher current tax bills, but the long-term family wealth benefits can justify the cost.
Special Considerations for Roth Conversions
Cash Flow Reality Check
Here's where many people stumble: You need cash outside your retirement accounts to pay the conversion taxes. Converting $100,000 and using $24,000 of it to pay taxes defeats the purpose—you've just withdrawn from your retirement savings to pay for the conversion.
Instead, it’s best to maintain liquidity in taxable accounts specifically for this purpose, or coordinate conversions with other income sources to cover the tax bill.
The NIIT Trap
The Net Investment Income Tax applies a 3.8% tax on investment income when modified adjusted gross income (MAGI) exceeds $200,000 for single filers or $250,000 for married couples filing jointly. A large conversion can push you over these thresholds, adding an unexpected 3.8% to your conversion cost.
Medicare IRMAA Impact
This one catches many retirees off guard. Medicare premiums are based on your income from two years prior. That $200,000 conversion you do in 2025? It could trigger higher Medicare premiums in 2027.
For context, IRMAA can increase a single person's monthly Part B premium from $185 to as much as $628.90 in 2025, depending on their income. The 2025 thresholds start at $106,000 for single filers and $212,000 for married couples.
State Tax Coordination
Don't forget your state tax bill. Some states have no income tax, making conversions more attractive. Others, like California or New York, can add substantial costs. Some high earners even time conversions around temporary moves to lower-tax states.
Avoid an All-or-Nothing Mindset
"I'll convert everything now while rates are low!" is a common reaction for many when they first learn about the benefits of a Roth IRA. However, this approach often backfires, pushing you into higher brackets and triggering additional taxes like NIIT or IRMAA surcharges.
Integration with Your Broader Wealth Plan
Roth conversions shouldn't exist in isolation - instead, they're most powerful when coordinated with your overall wealth strategy. Consider how conversions fit with charitable giving (large gifts can offset conversion income), tax loss harvesting (realized losses can offset conversion taxes), and estate planning.
The multi-generational benefits are particularly compelling. Your heirs will inherit Roth IRAs with no immediate tax consequences, though they'll still need to empty the accounts within 10 years under current rules. But those distributions will be tax-free, versus the ordinary income tax hit they'd face from inherited traditional IRAs.
Your Next Steps
Don't let analysis paralysis stop you from action, but also don't attempt this planning in isolation. Strategic Roth conversions consistently prove their worth over time, but they require careful modeling of multiple scenarios and coordination with your overall financial plan - and, that’s where we come in.
Key factors we’ll help you evaluate include:
Your 2025 taxable income projection and available "room" in your current tax bracket
- The timing of other income events (stock option exercises, business sales, bonus payments)
- State tax implications and potential domicile planning opportunities
- Integration with charitable giving, tax loss harvesting, and estate planning strategies
Multi-year conversion scenarios that optimize your long-term tax situation
Remember: Roth conversion ladders aren't about timing the market or predicting future tax rates with perfect accuracy. They're about giving your future self more choices about how and when to generate retirement income. In a world of increasing tax complexity, that flexibility is invaluable.
Ready to explore your conversion opportunity? Connect with your Entrust Wealth Partners advisor to model different scenarios and develop a strategic approach.
Not yet working with us? Call us at 860.838.3730 to discuss how Roth conversion planning fits into your comprehensive wealth strategy.
Investing includes risks, including fluctuating prices and loss of principal. No strategy assures success or protects against loss.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting.
To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions.
This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.
