Roth conversions shape retirement long after the tax bill

When a client calls in the fall and wants to move a traditional IRA into a Roth before year-end, the tax on the conversion is usually the easy part of that conversation. The harder questions come later. Clients want to know when they can touch the money and what the conversion will do to their Medicare premiums.

Those follow-up questions are where conversions tend to go sideways. Have the answers ready before your client signs anything.

Every conversion starts its own five-year clock

Each Roth conversion has its own five-year period for the 10% early-distribution tax on amounts taxable at conversion, not for determining when earnings can come out tax-free. A client who converts in 2025 and again in 2026 has two separate clocks running.

Some say each conversion must sit in its own Roth IRA, and that mixing a new conversion with an old one resets the clock. It doesn’t. Clients can combine conversions in an existing Roth IRA for ease of management, and each conversion still keeps its own five-year clock. The real work happens in your records, not in the number of accounts your client opens.

Age 59½ doesn’t override the earnings five-year rule

This one catches clients off guard. Turning 59½ removes the early withdrawal penalty, but on its own it doesn’t make earnings tax-free. A client age 59½ or older may withdraw from a Roth IRA before the five-taxable-year period ends without the 10% early-distribution tax. However, the distribution is not a qualified distribution, and any portion treated as earnings is generally includible in gross income.

The same rule applies to an older client who opens a first Roth through a conversion. Picture a 63-year-old with no Roth IRA who converts a traditional IRA. For a distribution to be qualified, that client must satisfy the five-taxable-year period beginning with the conversion year before taking earnings out tax-free.

Basis comes out first

Clients who worry about locking up their money will appreciate this part. For nonqualified distributions, regular contributions (basis) come out first. Those distributions are tax-free and penalty-free at any age. Problems start when a client under 59½ withdraws amounts that were taxable at conversion within that conversion's five-year period, or when a client dips into earnings before the qualified-distribution five-year period ends. Those earnings are generally taxable, and clients under 59½ may also owe the early distribution penalty.

Because of that ordering, basis records matter. If a client never filed Form 8606, Nondeductible IRAs, for earlier years, you can still catch up. If earlier Forms 8606 were missed, reconstruct the client’s IRA basis and file the appropriate prior-year forms, with amended returns where necessary.

Watch the Medicare ripple

A large conversion raises modified adjusted gross income (MAGI). That increase can push a client into a higher income-related monthly adjustment amount (IRMAA) bracket, and the timing works on a delay. IRMAA is assessed annually using a two-year lookback at MAGI. For 2026 Medicare premiums, the applicable IRMAA bracket is generally based on the client’s 2024 MAGI.

So, a conversion your client completes this year shows up in their Medicare premiums two years from now. If a conversion does trigger a Medicare increase, clients can request a reduction to IRMAA with Form SSA-44, Medicare Income-Related Monthly Adjustment Amount (IRMAA) - Life Changing Event, only if they also experienced a qualifying life-changing event that reduced their income. Bring this up during planning so the higher premium notice doesn’t arrive as a surprise.

Conversions as a legacy tool

Many clients convert with their heirs in mind. In a legacy-focused conversion, the parents pay the tax now so their beneficiaries don’t have to. Once the conversions are complete and the parents have paid the tax, the beneficiaries won't owe income tax on qualified Roth IRA distributions. Noneligible designated beneficiaries generally must distribute the entire amount within 10 years, but they won't owe tax on qualified distributions.

Inherited pre-tax accounts work differently. When a client asks if a noneligible designated beneficiary can skip distributions for nine years and take everything in year 10, it depends on when the original owner died. If the owner died before their required beginning date (RBD), no distributions are required in years one to nine, as long as the full balance is withdrawn by Dec. 31 of Year 10. If the owner died on or after the RBD, the beneficiary must take at least the required minimum distribution (RMD) each year and empty the account in year 10. That contrast often makes the case for a legacy conversion better than any projection can.

Keep the paper trail current

A conversion takes a day to complete and years to play out. For each client, keep a running log of every conversion date alongside their basis. Before recommending a conversion amount, estimate its potential IRMAA impact two years later using currently available brackets. Good records turn a future client question into a quick lookup instead of a scramble through old returns.

A Roth conversion is only as effective as the planning behind it. Join NATP's Tax Planning for Roth Conversions webinar on Nov. 12, 2026, to explore conversion tax consequences, IRA basis calculations and accurate reporting. The webinar is also available on demand.