This IRA Move Could Earn You Six Figures More in Retirement Savings
Written by
John Csiszar
Edited by
Brendan McGinley
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Most Americans understand that socking away money in retirement accounts, such as IRAs and 401(k) plans, is a good way to earn tax-advantaged income. But not as many understand that how you save, and when you pay your taxes, can matter almost as much.
In fact, one specific move, under the right circumstances, could potentially boost your retirement nest egg by $100,000 or more. While it’s not right for everyone, given the right scenario, it can be a relatively easy way to pump up your retirement savings.
The Strategy
For some IRA owners, simply converting a traditional IRA into a Roth IRA during lower-income years could provide over $100,000 in added lifetime income. Here’s how it works.
When you convert money from a traditional IRA to a Roth IRA, you have to immediately pay taxes on the converted amount. That’s certainly painful and something most IRA owners try to avoid. But if you have the money to pay the taxes now, you could be amply rewarded in the long run.
This is because once your money is in a Roth IRA, your future growth and qualified withdrawals are all completely tax-free. If you’re currently in a low tax bracket, you can minimize the effect of the tax hit now and enjoy the benefits of tax-free withdrawals in the future. Plus, if you make the conversion while your traditional IRA balance is relatively low, you’ll benefit even more from taking larger tax-free withdrawals upon retirement.
How the Math Might Work
Consider this hypothetical example with the following assumptions:
- You’re 40 years old
- You have $100,000 in a traditional IRA
- You expect to retire at 65
- Your current marginal tax rate is 22%
- Your projected retirement tax rate is 32%
- Your investments earn an average of 6% annually
If you convert $100,000 to a Roth IRA now, you pay $22,000 in taxes upfront. That $100,000 then grows tax-free for 25 years.
After 25 years at 6% growth, that Roth balance would be worth about $430,000 — all of it available tax-free.
If you leave that $100,000 in your traditional IRA instead, it grows to the same $430,000, but withdrawals would be taxed at your future 32% rate. That leaves you with about $292,000 after taxes.
The difference? Roughly $138,000 — generated not by higher returns, but by smarter tax timing.
While many retirees remain in the same tax bracket they had while working, others — particularly those with large traditional retirement balances — can find themselves pushed into higher brackets due to required withdrawals, taxable Social Security or other pension income. That is the scenario in which the Roth conversion works very well.
Caveats
This example doesn’t fully account for the $22,000 you’d have to pay in taxes with outside money. If you instead kept that money invested for 25 years at a 6% annual return, you’d end up with an additional $94,000 or so in retirement. This would narrow, although not totally eliminate, the advantage gained by the conversion in the example. In practice, Roth conversions are most effective when future tax rates are higher, or when Roth withdrawals help reduce required withdrawals, Social Security taxation or Medicare premium surcharges.
The other consideration is that not all retirees find themselves in higher tax brackets upon retirement. If your marginal tax bracket is the same before and after retirement — and if the tax payment could have remained fully invested — the conversion does not create additional wealth on its own.
A Smarter Move To Consider — Staggered Conversions
One way to potentially get “the best of both worlds” is to spread your conversions over several years. This can ultimately be more effective than one large move.
For starters, if you convert a large traditional IRA in a single year, you may actually push yourself into a higher tax bracket, negating any advantage.
Staggered conversions also allow you to spread the tax bill out over many years, making it more palatable than forking over a five-digit sum in a single year just for taxes.
One strategy that advisors recommend is to convert only enough to “fill up” a lower tax bracket in any given year. For tax year 2026, for example, the 22% tax bracket for joint filers tops out at $100,800, per the IRS. To use this strategy successfully, consider converting just enough so that your income doesn’t exceed this 22% bracket threshold. Then, make your next conversion the following year, or any subsequent year in which you remain in a lower tax bracket.
The Bottom Line
Nothing about tax law is easy. But if you understand the rules of the game, you can make strategic moves that boost your long-term income. Whether or not a Roth conversion can save you $100,000, you should examine it as a viable option any time that such a move would increase your retirement nest egg.
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