You have probably heard that Roth conversions can pay off. You move some of your traditional IRA into a Roth, pay the tax on it now, and that money grows tax-free for the rest of your life and your heirs'. The hard part is not whether to convert. It is how much.
There is no single answer. The right amount depends on three things: what you are optimizing for, your read on the market, and how much cash you have outside your IRA to pay the conversion tax.
The same person, four conversion plans
Here is one household and one portfolio, modeled four ways in Lumifin. Each plan fills Roth conversions up to a different tax bracket each year, on top of a tax-smart withdrawal order. The figures are the lifetime impact compared with doing nothing, a plain fixed withdrawal order and no conversions.
| Conversion plan | Ending balance | Lifetime tax saved | Healthcare saved |
|---|---|---|---|
| No conversions (tax-smart order only) | +$96,738 | +$24,127 | -$5,155 |
| Fill the 12% bracket (~$97K/yr) ★ | +$540,597 | +$201,462 | +$22,054 |
| Fill the 22% bracket (~$207K/yr) | +$463,446 | +$486,528 | +$94,918 |
| Fill the 32% bracket (~$501K/yr) | +$386,532 | +$546,839 | +$107,830 |
Two things jump out.
Converting at all beats doing nothing, by a lot. Even modest conversions that just fill up the 12% bracket end with about $540,000 more than the baseline. (Notice the first row, too: simply fixing the order you withdraw from, with no conversions at all, is already worth about $97,000.)
But the most tax saved is not the most money left. Filling the 32% bracket saves the most in lifetime taxes ($547,000) and the most in healthcare costs ($108,000), yet it ends with roughly $154,000 less than the modest 12% plan. The reason: the aggressive plan triggers a $122,000 tax bill in the very first year, and every one of those dollars is now out of the market instead of compounding. "Save the most tax" and "keep the most money" are different goals, and they point to different amounts.
Two things the table can't see
Your read on the market. Converting during a downturn moves the same shares into a Roth at a lower value, so you pay less tax now and the recovery happens tax-free. How much you convert is a lever you can time, to the extent anyone can time the market.
Where the tax gets paid from. A conversion triggers a tax bill that year, and where you pay it from changes everything. Pay it from a regular savings or brokerage account, and the full amount you converted keeps growing tax-free. Pay it out of the IRA itself, and you shrink the very account you are trying to grow, and most of the benefit evaporates. The 32% plan above owes $122,000 in year one. The real question is whether you have that sitting in cash outside your retirement accounts.
So how much should you convert?
Enough to fill the brackets that fit your goal, in the years your income is low, paid for with cash you already have, and timed to the market when you can. No rule of thumb captures all of that, which is exactly why the answer is personal.
The useful move is not to guess at a bracket. It is to see your own number: the conversion amount that lands where you want on the trade-off between ending balance, lifetime taxes, and healthcare costs, with the year-one tax bill and your cash on hand factored in.
Figures from modeling one profile in Lumifin, comparing conversion strategies against a fixed-withdrawal baseline. Educational only, not financial or tax advice. Everyone's situation is different. Model your own numbers, or check with a fiduciary advisor or CPA, before acting.