The Roth Conversion Window: Why the 5 Years Before Retirement Are Critical

For many pre-retirees, the five years leading up to retirement represent a unique and fleeting opportunity. During this period, your income may still be relatively high, but you have the chance to strategically convert traditional IRA and 401(k) assets into Roth accounts — potentially saving six figures in lifetime taxes.

A Roth conversion involves moving money from a pre-tax retirement account (like a traditional IRA) into a Roth IRA. You pay ordinary income tax on the converted amount now, but all future growth and withdrawals are tax-free. The key question is: will your tax rate be higher now or in retirement?

For many people approaching retirement, the answer is nuanced. While your earned income may drop after you stop working, Required Minimum Distributions (RMDs), Social Security benefits, and investment income can push you into higher tax brackets than you expect. This is especially true under current tax law, where the Tax Cuts and Jobs Act provisions are set to sunset after 2025, potentially raising rates across the board.

The ideal conversion strategy involves converting just enough each year to “fill up” your current tax bracket without pushing you into the next one. For example, if you’re in the 24% bracket and have $40,000 of room before the 32% bracket begins, you might convert exactly $40,000. Over five years, that’s $200,000 moved to tax-free status at a known, manageable rate.

Timing matters enormously. Once you begin taking Social Security or RMDs, your taxable income floor rises, making conversions more expensive. The window between your peak earning years and the start of mandatory distributions is often the sweet spot.

There are several important considerations. First, you need sufficient non-retirement funds to pay the tax bill — paying conversion taxes from the converted amount itself defeats much of the purpose. Second, the five-year rule means each conversion has its own five-year clock before earnings can be withdrawn penalty-free (though this primarily affects those under 59½). Third, conversions can affect Medicare premiums through IRMAA surcharges, so careful planning is essential.

At Authentikos Advisory, we model Roth conversion scenarios as part of our Balanced Obligations pillar within the Arbor Method™. We project your lifetime tax liability under multiple conversion strategies, factoring in Social Security timing, RMDs, state tax implications, and potential changes in tax law. The goal is to find the strategy that minimizes your total lifetime tax burden while maintaining the flexibility you need.

If you’re within five years of retirement and haven’t evaluated Roth conversions, now is the time. The window is finite, and once it closes, the opportunity cost can be substantial. Schedule a complimentary Clarity Call to discuss whether a Roth conversion strategy makes sense for your situation.