Roth conversion in a low-income or down year
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A Roth conversion moves money from a pre-tax retirement account into a Roth. You pay income tax on the amount now, and from then on it grows and comes out tax-free.
The trick is when. In a year your income is unusually low, such as a slow year for the business, a gap between jobs or early retirement, you can convert at a lower tax rate than you'd pay later. A year when markets are down works similarly: you convert more shares for the same tax.
How it works
Converting pre-tax retirement money to Roth means paying tax now so it grows tax-free after. It costs least in a year your income is low, or when the account’s value is down.
What makes it hold up
- The value converted and the date
- Cash outside the account to pay the tax
- This year’s projected income, to fill a bracket without spilling over
Risks
Low for ordinary investments. Converting a private holding at a steep discount to its value gets scrutiny and needs a real appraisal.
Questions to ask your CPA
- How much can I convert this year before the next bracket?
- Will it raise my Medicare premiums or affect college aid?
Common questions
Is there an income limit on conversions?
No. Anyone can convert, whatever their income.
Can I undo a conversion?
No. Since 2018, conversions can't be reversed, so decide on the amount carefully, often near year end when your income is clearer.
How much should I convert?
Often enough to fill your current tax bracket without spilling into the next. Cratchit uses your projected income for the year to show where that line is.
Are there side effects?
Yes. The extra income can raise Medicare premiums two years later and can reduce college financial aid. Pay the tax from cash outside the account so more stays invested.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.