5 Roth Conversion Strategies for High‑Income Investors
For investors with $1 million or more in tax-deferred accounts, a Roth conversion is one of the most effective tools available for reducing lifetime taxes. Moving money from a traditional IRA or 401(k) into a Roth IRA means paying income taxes now, at today’s known rates, in exchange for permanently tax-free growth and withdrawals later. Done correctly, the strategy can eliminate six figures or more in future tax liability. Done carelessly, it can spike your Medicare premiums, trigger the Net Investment Income Tax, and push you into a bracket you didn’t need to be in.
I’m Ron McCoy, founder of Freedom Capital Advisors, a Florida-registered investment adviser. I’ve spent 40 years in this industry watching clients hand the IRS money they didn’t owe, simply because they didn’t plan far enough ahead. Roth conversions, when timed right, are one of the clearest ways to take that control back.
Here are five strategies that actually work for high-income investors, along with the traps you need to avoid.
The Mechanics of Roth Conversions
A Roth conversion is a taxable event. You move money out of a tax-deferred account, report it as ordinary income in the year of the conversion, and pay taxes at your current marginal rate. After that, the money grows tax-free. Qualified withdrawals, meaning you’re at least 59½ and the account has been open for five years, come out with no federal tax owed, ever.
Roth IRAs also have no Required Minimum Distributions. That matters for estate planning: your heirs inherit a tax-free asset, and you keep more flexibility in managing your own distributions during retirement.
Vanguard’s 2024 research on retirement tax planning found that well-timed Roth conversions can save between $500,000 and $1 million in lifetime taxes on portfolios over $5 million. The keyword is “well-timed.” For married couples with AGI above $161,600 in 2025, large conversions can push you into the 37% federal bracket, trigger the 3.8% Net Investment Income Tax, and increase Medicare premiums through IRMAA. The strategy works when you control the size and timing.
A Case Study in Conversion Laddering
The following is a hypothetical example for illustrative purposes only. It is not based on any specific client’s situation and does not represent actual results.
Consider a 55-year-old executive with a $7 million estate: $4 million in a traditional 401(k), $2 million in taxable investments, and $1 million in real estate. Her first advisor proposed a single $1 million Roth conversion. At her income level, that pushed her AGI to $1.2 million, generated roughly $370,000 in federal taxes, and added $12,000 in Medicare surcharges.
A smarter approach is a multi-year conversion ladder. Converting $200,000 per year over five years keeps AGI below the 32% bracket threshold ($383,900 for married filers in 2024). Spreading conversions across low-income years, before RMDs begin, can reduce the total tax bill substantially compared to a lump-sum approach. In this hypothetical, at a 6% assumed annual return, the $1 million converted over five years grows to approximately $1.3 million by 2030, and every dollar of that growth is tax-free.
The principle: pay taxes on your terms, not the IRS’s schedule.
Five Roth Conversion Strategies for High-Net-Worth Investors
1. Leverage Low-Income Years
The best conversions happen when your income temporarily drops. The years between retirement and RMD age, typically 73 under current law, are often the lowest-income period a high earner will see. Business sale years, sabbaticals, or early retirement transitions can create similar windows. The goal is to fill the 22% or 24% bracket without crossing into the 32% or triggering NIIT. I call these “gap years,” and they’re worth planning around deliberately.
2. Build a Conversion Ladder
Instead of one large conversion, spread the total across multiple years. A ladder of $100,000 to $300,000 per year keeps your AGI manageable, avoids bracket spikes, and prevents Medicare surcharge triggers. The ladder also gives you flexibility, if a market downturn or unexpected income event changes your picture mid-year, you can adjust the conversion amount before December 31.
3. Pair Conversions with Deductions
A Roth conversion adds to your ordinary income for the year. The way to soften that is to convert in years when you have large itemized deductions to offset it. Major medical expenses, significant charitable contributions, and Qualified Charitable Distributions from IRAs after age 70½ can all reduce the net taxable impact of a conversion. The math works best when conversion income and deductions land in the same tax year.
4. Offset with Tax-Loss Harvesting
High-net-worth investors with taxable brokerage accounts can use capital losses to offset the income impact of a conversion. When you harvest losses in your taxable portfolio — selling depreciated positions before year-end — those losses reduce your net capital gains. That reduction can create room to do a slightly larger conversion without crossing a bracket threshold. This is one of the more overlooked ways to increase conversion efficiency without changing the conversion amount itself.
5. Model Before You Convert
Roth conversions are permanent. You cannot undo a conversion after the fact — that option was eliminated by the Tax Cuts and Jobs Act in 2017. That makes pre-conversion modeling non-negotiable. Use tax projection software to run your specific numbers against current brackets before committing to a conversion amount. If you need cash to cover the tax bill, pull it from high-basis taxable assets rather than liquidating Roth dollars. Every dollar that stays in the Roth compounds tax-free.
What to Watch Out For
Roth conversions have real costs. Converting $500,000 at a 37% marginal rate means coming up with $185,000 in taxes, sometimes requiring asset sales. If the market drops significantly after you convert, you’ve paid taxes on a value that no longer exists in the account. Large conversions can trigger IRMAA surcharges two years forward — Medicare uses a two-year lookback on income — so factor that into the timing analysis.
The five-year rule also applies to each new Roth account separately. If you open a new Roth through conversion after age 59½, the five-year clock resets for that account. This is less of a concern for investors well past 59½, but worth noting if you’re working with inherited accounts or setting up conversions for a younger spouse.
I manage these risks through staggered conversion schedules, coordinated loss harvesting, and in some cases, covered call strategies that generate income to fund the tax bill without disrupting the core portfolio. The framework matters as much as the conversion itself.
Working with a Tax Professional
Roth conversions are tax decisions as much as investment decisions, and the right move depends on your specific bracket, deductions, state tax situation, and estate plan. I work alongside CPAs and estate attorneys to coordinate conversions with the full picture. If you’re making conversion decisions without that coordination, you’re leaving money on the table. An internal link to our retirement planning overview is worth reading first: Ten Things Your Big Bank Brokerage Isn’t Telling You.
Frequently Asked Questions
When is the best time to do a Roth conversion?
The best time is a year when your income is temporarily lower than usual — between retirement and when RMDs begin at age 73, after a business sale, or during a year with large deductible expenses. The goal is converting at a lower marginal rate than you expect to pay in the future. For most high-net-worth investors, the window between ages 60 and 72 is the most efficient period.
How much can I convert to a Roth IRA each year?
There is no annual limit on Roth conversions. You can convert as much as you want in a single year, but the converted amount is added to your ordinary income and taxed accordingly. The practical limit is whatever keeps you from crossing into a higher bracket, triggering NIIT (above $250,000 for married filers), or increasing Medicare premiums through IRMAA.
Can I undo a Roth conversion if I convert too much?
No. The ability to recharacterize a Roth conversion was eliminated by the Tax Cuts and Jobs Act effective for tax year 2018. A Roth conversion is permanent once completed. This is why modeling your conversion amount before year-end, not after, is essential.
Does a Roth conversion affect Medicare premiums?
Yes. Medicare uses a two-year income lookback to calculate IRMAA surcharges. A large Roth conversion in 2025 could increase your Medicare Part B and Part D premiums in 2027. For investors near IRMAA thresholds, this is a material cost that belongs in the conversion analysis.
What is the five-year rule for Roth conversions?
Each Roth IRA account must be held for five years before converted funds can be withdrawn penalty-free. The five-year clock starts January 1 of the year the conversion was made. If you’re already over 59½, you avoid the 10% early withdrawal penalty regardless, but the five-year rule still applies to the tax-free treatment of earnings in some situations. Anyone under 59½ planning conversions needs to factor this in carefully.
Ready to build your Roth conversion plan? Book a complimentary strategy call at freedomcapitaladvisors.com and we’ll run your specific numbers.
As I’ve said for years: pay now, or the IRS collects later.
Sources
- Vanguard. (2024). Tax-Efficient Retirement Planning Strategies. https://www.vanguard.com
- IRS. (2025). Publication 590-B: Distributions from Individual Retirement Arrangements. https://www.irs.gov/publications/p590b
- IRS. (2025). Topic No. 309, Roth IRA Contributions. https://www.irs.gov/taxtopics/tc309
- Fidelity Investments. (2024). Tax-Smart Retirement Strategies. https://www.fidelity.com/learning-center/personal-finance/retirement/tax-smart-strategies
Ron McCoy
Ron McCoy is the Founder and CEO of Freedom Capital Advisors, an independent, fiduciary wealth management firm serving clients across the Southeast and nationwide. With more than 40 years of experience in the financial industry, Ron has worked extensively with a wide range of investment products, from bonds to options, building income-focused strategies for retirees and long-term investors. As an Oxford Club Pillar One Advisor, Ron’s career has been centered around independent thinking and research.
