The information presented in this written blog is the opinion of the author(s) and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through BRIGHTWORK WEALTH MANAGEMENT, LLC, an investment adviser registered with the state(s) of Colorado and Arizona.
0004 – The Roth IRA Conversion (for Chickens who can’t Handle the Pain😊
19 October 2026
Bottom Line Up Front: If you 1) are a retirement saver living in the U.S. and 2) happen to have a magic wand – you’ve probably considered using that magic wand to move 100% of your retirement savings assets into your Roth IRA and cover the whole thing with fairy glitter dust.
If you’re fresh out of magic but still wish that your retirement savings were “living” in tax-free accounts, maybe you’ve considered “converting” some pre-tax IRA assets by moving them into tax-free accounts like your Roth IRA. Having considered this course of action, you might have balked, however at the prospect…these conversions can be downright painful…even when they make sense. (And we know that decision makers are more aware of pain than pleasure when it comes to money.)
What follows is my rambling on the topic of – “How might we mitigate the ‘problem of pain’ when dealing with bulging pre-tax retirement savings accounts.”
Note: For simplicity’s sake, my writing will address a hypothetical retirement saver with two retirement accounts – a pre-tax IRA and a post-tax Roth IRA. We’ll save the minutiae of non-deductible IRA contributions (IRA’s with basis), in-plan 401(k) conversions, mega “back-door” conversions, etc for another post. It matters not – the concepts hold throughout when we’re trying to get pre-tax money into after-tax accounts.
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Background/Overview: What the heck is an IRA “conversion” – and why do I keep hearing about it?
When a retirement saver sends money to an IRA, he is usually realizing a tax benefit (a deduction to taxable income) in the year the contribution is made. In most cases, the saver is avoiding paying federal and state income tax (he cannot, however, avoid the Social Security or Medicare contributions). Once assets are sheltered inside the IRA, any earnings (dividends, interest, capital gains) are tax deferred – meaning that the IRS is blind to the income being generated in that account. For a while, this is a great situation, and our saver is sleeping soundly..
At some point, however, the retirement saver starts to realize that he’s actually approaching retirement, that his pre-tax IRA has grown quite large, and that it’s all going to be taxed. Worse…it’s going to be taxed as ordinary income (less favorably than capital gains and/or qualified dividends in a taxable brokerage account). Worse still…it’s going to be forced out of that pre-tax IRA on a schedule determined by the IRS – reducing the saver’s control over when tax liabilities are incurred.
That’s when our taxpayer might start to feel some angst. He forgets that he realized a nice tax benefit as he contributed to this pre-tax account over the years, and that he enjoyed tax-deferred growth over the years. He’s stressed, and maybe he starts looking for solutions.
One of the solutions featured prevalently in financial media is the IRA “conversion” - a process by which our retirement saver moves some securities or cash from his pre-tax IRA into his post-tax Roth IRA. Here’s an example: if our saver moves $10,000 from the IRA to the Roth IRA, his personal tax filing will reflect an additional $10,000 of ordinary income in the tax year in which the conversion is executed. The additional taxes owed to the IRS and the state (if applicable) can be paid using a withholding applied to the conversion, but there’s an early withdrawal penalty (10%) if our saver is younger than age 59.5. Note: generally – my preference is to see folks pay the “additional tax burden” generated by a conversion using “idle cash” from somewhere else (an overfunded savings account, a newly-matured CD, side-hustle cash from your dog-walking business, etc).
Ok – So What’s the Problem? If folks are motivated to reduce the looming tax liability presented by pre-tax accounts, why do some folks balk?
Here’s an incomplete list of possible answers, most of which draw a link to our hypothetical saver’s behavior and feelings…and most which are based on conversations I’ve had with real people who are struggling to move forward on this strategy.
Firstly, for a lot of folks in their 50’s or 60’s today (in 2026), the IRA’s are stuffed after decades of solid market returns; quite frankly, the prospect of “converting” these accounts might feel overwhelming. (When you’ve got a $1.5M IRA at age 55 and it grows by $150K in a 10% year, it feels like you’re trying to get control of a snowball rolling down a mountain.) It’s the proverbial ‘good problem to have’…but it might still be a problem. Consider what that $1.5M account will look like in 20 years (at age 75)…and then consider what the Required Minimum Distributions (RMDs) will look like. This guy might have additional, involuntary, taxable income of like $200K/yr. Ughh. This cohort of retirement savers didn’t have access to post-tax retirement savings for much of their working lives. The Roth IRA wasn’t really operational until the late 1990’s and the Roth 401(k) wasn’t a thing until 2006. Even when it became a thing, employers and the plan administrators they used weren’t required to make it available immediately (for federal and military employees participating in the Thrift Savings Plan (TSP), the Roth TSP option didn’t appear until 2012).
Second, some folks just turn green when they look at a strategy that would accelerate a tax burden (conversions result in taxes today that would otherwise be paid in the future). And - that’s understandable! One of the tax-professional’s maxims is: tax delayed is a tax not paid. Simply put, it’s not easy to write a $20,000 check to the taxing authorities to generate assumed future benefits.
Third – there exists a good deal of uncertainty when you run the math. Not that math is uncertain…rather, the future variables in the formula are uncertain. We don’t know, with certainty, what a saver’s tax profile will look like in the future. Will taxes be higher in 15 years than they are today? Who knows. Will our taxpayer’s income in 20 years be “high” or “low” or “average”? Who knows. Will the rules change? Who knows. Faced with that ambiguity…it’s easy to shrug our shoulders and “do nothing.”
Lastly – the folks who I would consider “ideal” candidates for conducting some conversions are 1) youngish (30-50 yrs old) and 2) liquid enough to spend “idle cash” on tax planning strategies. But – those same folks are also in their prime earnings years (they probably aren’t in the 12% federal marginal rate) and also their prime spending years (they have kids, busy careers, fancy coffee machines, etc). The timing for IRA conversions is good for these folks…but it’s also bad☹
And finally…the whole thing might just make you feel like a lab hamster on the wheel. You might be thinking, “These money bubbas told me to save money in an IRA when I was young. Now, I’m just trying to get old and they’re telling me the IRA is a ‘tax bomb’ and that I’ve got the move the money to this other thing. And it will cost me a bunch of money. These guys are worse than lawyers.” Yes – I would understand if you simply threw up your hands and poured a glass of wine.
Ok – So the Tradeoff is Painful…What Should I Do? If you find yourself nodding a little bit and maybe even dabbling with some self-pity, you might be saying something like this:
“I’m 55 and I’ve got a $300K Roth IRA and a $1M Traditional IRA from some previous-employer 401(k) Rollovers; I am feeling stressed out because every helpful know-it-all at the watercooler is telling me I’m going to get blown up when I reach RMD age. I feel like I’m so far behind the curve that it’s hopeless.”
Well – we cannot know what you should do without knowing you and your personal circumstances…but we can most certainly suggest some things that might be helpful to just about anyone.
How to think about it (the framing):
First – it might be helpful to simply acknowledge that you might not be able to convert 100% of your pre-tax assets. Ever. There – doesn’t that feel better? Even if you could convert 100% - it might be that you can do better.
Second – it might be even more helpful to think about that pre-tax IRA as something to be contained first, and fully converted only where practical and desirable.
Why you might not need to fully convert your pre-tax IRA:
First, don’t forget that you should probably plan to spend some of this pre-tax money. It’s easy…reach age 59.5, take some out, and buy something cool. Vacation? Gifts for kids? Porsche? I’d recommend that you consider at least some systematic, tax-aware distributions from your IRA. Generically, this might be during the period of time between full work stoppage (e.g., retirement) and the required beginning date for RMDs (e.g., 75 if you were born after 1960). IRA distributions during your 60’s can be particularly useful if those distributions enable you to delay your Social Security retirement application – helping you to maximize a more tax efficient, USG-guaranteed, inflation-adjusted benefit.
Second, even high-net worth families will probably find a good opportunity, at some point during their full retirement years when they can get some money out of the pre-tax IRA at a decent effective tax rate. This “opportunity” might be a window of time between jobs, during a “mini-retirement”, or maybe during a year where the family recognizes a capital loss or a one-off charge generated by a pass-thru entity.
Third, under current tax rules, you’ll have the opportunity beginning at age 70.5 to make tax-free charitable gifts (QCDs) from your IRA. At that point, we’d recommend charitably inclined families shift charitable giving from after-tax accounts (e.g., writing a check to the Boy Scouts of America from a checking account) to the pre-tax accounts (sending a check to your church directly from your IRA custodian). In 2026, a retirement saver who is age 70.5 or better is permitted to send up to $111,000 to qualified charities from her IRA. Tax free! If your family is charitably inclined, your optimal plan would probably not include fully converting your IRA; instead, you’ll estimate your charitable giving from age 70 thru age 90 (or whatever) and leave something like amount in your IRA…a little charitable quasi-trust you’ve set up. Look at you!
While it might be comforting to acknowledge you might not ever fully convert your pre-tax IRA, it’s likely there is some work to be done. Work? Doing what? Well - most retirement savers would do well to contain future growth of the pre-tax IRA, where possible. Think of this as, “keeping the lid on” the account’s value. I find that – in most cases - the biggest problem presented by large IRAs isn’t their current value. Rather, the problem is the future growth that will happen if we don’t take any action between now and RMD age. Essentially – a $1M IRA isn’t going to cause a huge problem if we arrive to RMD age with $1M. If, however, we let that account grow to $4M over the next 15 years, now our IRA might cause some future headaches.
Ok – what action(s)? What can I do, and how should I think about my “pre-tax riches problem”?
Consider this menu of options – which I’d invite you to think about in concert…or put into use simultaneously, in series, or both. (One of the main ideas I’m trying to communicate in this post is: don’t feel like you need to deal with pre-tax accounts all at once, and don’t think you need to deal with them using just one tool.)
Distributions for spending or charitable giving: I already mentioned that we might plan on some spending or giving (after age 70.5) from the IRA. Obviously, this will help to contain the account value. Sometimes, the tax code will even let us do this before age 59.5 without an early withdrawal penalty. For example, you can take $10K from an IRA to purchase a home. Married? That’s $20K.
Conversions to Post-Tax Accounts: We can execute some regular, incremental “conversions” between the IRA and a Roth IRA…and we don’t need to do it all at once. Here’s how I’d like to see that go:
o Armed with an accurate understanding of her family’s household total taxable income, we evaluate how much “room” we have before our income crosses thresholds that result in additional tax burden or undesired outcomes.
o We decide which thresholds we’d like to remain below, then we make sure we don’t convert ourselves beyond that level.
o Finally, we decide how much we’d like to invest in this strategy. If we approach conversions as an investment, we’ll feel better and we’ll probably be more disciplined/consistent. If we decide that we’d like to invest $10K in IRA conversions for a particular year, we can “back into” the amount of the conversion by dividing $10K by our marginal tax rate. Let’s say we pay 22% federal income tax and 4% state income tax; we’d calculate our conversion as $10K / (22% + 4%) = about $38,500.
o Note: Because Roth IRA money is so attractive, we want to get as much into the Roth IRA as soon as we can. Thus, I generally like to “pay the tax” from some other account, rather than withholding the taxes from the conversion.
Asset Location: Importantly – nay, very importantly – our efforts to keep the lid on the pre-tax IRA needs to include checking that we’ve got the right assets in the right places - to the maximum extent possible. All else equal in a diversified “family portfolio” (with multiple accounts), we’d prefer to locate our portfolio’s growth-oriented assets (e.g., growth stocks) in our Roth IRA while locating the income-oriented assets (e.g., bonds and dividend-focused stocks) in our pre-tax IRA. Here’s some thoughts:
It is unlikely that you’ll be able to move all of your growth stuff out of the IRA as quickly as you’d like; it’s a process just like the conversions: incremental, slow, boring.
If you’re doing conversions to a brand new Roth IRA, the first assets you’ll want to move will include long-term growth assets. If you have a collection of growth assets and aren’t sure where to start, send the ones that seem to be having a bad year (i.e., their valuations are down compared with historical norms).
o If you already have a Roth IRA established alongside your pre-tax IRA, you can obviously continue moving assets from the IRA to the Roth IRA…but in addition you can (and should) actively rebalance the two accounts such that 1) your two accounts – when viewed in combination - are allocated in accordance with your overall strategy and that 2) the Roth IRA has more of the strategy’s growth assets and the IRA has more of the strategy’s income assets.
o Note1: At some point, the Roth IRA will be positioned quite aggressively (i.e., 100% growth assets). Our saver should expect greater volatility in that account, confident that the pre-tax IRA provides the ballast to diversify and stabilize the portfolio, overall.
o Note2: Further down the line, if we are actually making headway on the pre-tax IRA balance…our saver needs to understand that we might run out of growth assets to move from the IRA. Eventually, we might find ourselves adding income-oriented securities into our Roth IRA if our overall strategy includes income-oriented securities and if we plan on a 100% conversion.
Thanks, a lot, Egghead…But What Should I Do? Ok – as we note in our opening disclosure, this blog is designed to inform, entertain, and stimulate folks to feel more confident in their own decision-making, but we can’t give advice through a blog because we don’t have a detailed accounting of the recipient’s personal and financial circumstances. But…we feel comfortable suggesting:
Change the way you think about your pre-tax accounts. If they’re bulging at the seams, that’s a good thing. We think we can make a good thing better by taking some mitigation actions…but don’t forget that it’s a good thing to owe taxes; it’s a sign you’re doing alright. So don’t beat yourself up too much.
If you’re interested in taking some mitigation actions, remember that:
o You don’t need to eat the whole elephant in one bite. In fact, you might not ever finish the job. Don’t let that stop you from making progress.
o If might be that “making progress” is as simple as “keeping the lid on” your pre-tax account values.
"Keeping the lid on” pre-tax account values will probably include a range of actions, including 1) distributing & spending, 2) converting to post-tax accounts, 3) charitable giving from pre-tax IRAs, and 4) re-balancing your retirement savings accounts such that your Roth IRA has more of the growth stuff and your IRA has more of the non-growth stuff.
The End: Ok – I feel like I’ve beat this one to death. My apologies – it’s just a thing that I do. The only thing I want is that you might look at your financial world, and how it interacts with the big financial world, from a number of different and even creative angles. When it seems black-and-white, we feel cornered and apathetic. In the case of mitigating the tax issues attached to larger pre-tax accounts – remember to take it one step at a time, don’t wait to embark on a strategy that you believe in, and take it easy.
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Next month’s post: “Why are Exchange Traded Funds (ETF) so Popular?”
Have a good topic you’d like to unpack? Have a comment or question from this post or a previous edition? Send us a note through the website or to me directly at: chris@brightworkwealth.com
The information presented in this written blog is the opinion of the author(s) and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through BRIGHTWORK WEALTH MANAGEMENT, LLC, an investment adviser registered with the state(s) of Colorado and Arizona.
