Roth Conversions in the Highest Tax Bracket: When Do They Make Sense?

Roth conversions are one of the most popular tax strategies in retirement planning — but if you’re already in a high tax bracket, paying more income tax this year to do a conversion can feel counterintuitive. So when does it actually make sense to do a Roth conversion if you are in the 35% or 37% federal income tax brackets?

Should you do a Roth conversion in the 35% or 37% bracket?

In 2026, the 37% tax bracket starts at $768,700 of taxable income for married couples filing jointly ($640,600 for single filers). The 35% bracket starts at $512,450 ($256,225 single). Every converted dollar is taxed at that rate or higher, plus state tax. That’s a high hurdle, but not an automatic no.

The comparison that matters is your marginal tax rate on the converted dollars today versus the rate those same dollars would face when withdrawn later. Your average tax rate doesn’t enter into it. A couple with $768,700 of taxable income pays about 27% of it in federal income tax on average, yet each additional converted dollar costs 37 cents.

Also separate high income today from high income throughout retirement. A physician whose paycheck stops may drop several brackets. A business owner with deferred compensation and a $6 million traditional IRA may never leave the top one. Those households need very different strategies.

Finally, earning too much to contribute to a Roth IRA doesn’t settle anything. Contributions have income limits. Roth conversions don’t.

The math when your tax rate stays the same

If your rate is the same now and later, converting and waiting produce the same result. While Roth accounts are commonly touted for their tax-free growth, it is ultimately your current and future tax rates that will determine if Roth conversions are beneficial.

Suppose a household is in the 37% tax bracket for the rest of their retirement, and the conversion tax comes out of the converted amount. They are considering a $100,000 IRA conversion this year:

	Leave it pretax	Convert now
Tax paid today	$0	$37,000
Amount invested	$100,000	$63,000
Value after doubling	$200,000	$126,000
Tax at withdrawal	$74,000	$0 (qualified withdrawal)
You keep	$126,000	$126,000

The pretax path pays more tax in dollars ($74,000 when the tax payment is deferred vs. $37,000 in upfront taxes), but only because the account holding the government’s share grew too.

More years of tax-free growth don’t break the tie. Over 30 years the paths still match, as long as returns and tax rates match.

The example has limits. Paying the tax from a taxable account moves more money into the Roth, but you give up what that outside money would have earned, so its future value belongs in the comparison. Required minimum distributions and legacy goals also call for a broader analysis.

When state taxes can make a high-bracket conversion worthwhile

State taxes are the most common reason a top-bracket conversion pays off. Your federal bracket can stay the same while your combined rate rises.

Say you live in Texas, which has no income tax, and plan to retire to California. If you’d still be in the 37% federal bracket and California added about 10% (an illustrative figure; its state income tax rates top out at 13.3%), later withdrawals would face roughly 47%. In our $100,000 example, converting in Texas leaves you $126,000. Waiting leaves you $106,000. Same federal bracket, $20,000 difference.

Reverse the move and waiting wins: a Californian retiring to Texas would pay about 47% to convert now versus 37% later.

Compare tax lows for each state. Be sure to review how each state actually treats retirement income, not just the headline rate. Iowa’s rate is 3.8%, but residents 55 and older can exclude IRA distributions and Roth conversion income entirely.

What counts is where you live when you convert. Federal law bars states from taxing nonresidents’ retirement income, so California can’t tax a conversion completed before you move there.

Other factors that can make a high-bracket conversion worthwhile

When your heirs would pay more than you

The 37%-now-versus-37%-later comparison assumes you’ll spend the money yourself. If your IRA is likely to pass to your children, the future tax rate that matters is theirs.

Most children and other non-spouse beneficiaries must empty an inherited IRA within 10 years. Children often inherit in their 50s, during their own peak earning years, so those forced withdrawals stack on top of their paychecks.

Say you’re a retired Iowa couple still in the 37% bracket. Because Iowa excludes Roth conversion income for residents 55 and older, you’d pay 37% to convert. Your daughter, a surgeon in Minnesota, would pay 37% federal plus roughly 10% state (an illustrative figure) on inherited withdrawals. Using the $100,000 example:

• Convert now: she inherits $126,000 in a Roth and owes no tax on it.
• Leave it pretax: she inherits $200,000 but keeps about $106,000.

An inherited Roth IRA also has to be emptied within 10 years, but your heirs can generally let it grow untouched until the final year.

The effect is even stronger if your IRA will pass to a trust that holds onto distributions. In 2026, a trust hits the 37% bracket on income above just $16,000.

When unspent required minimum distributions break the tie

The same-tax-rate example above assumes your money stays sheltered until you spend it. Required minimum distributions change that. Starting at age 73 or 75, depending on your birth year, you must withdraw a growing share of your pretax accounts each year, whether you need the money or not.

If you don’t need it, whatever’s left after tax usually lands in a taxable brokerage account. From then on, dividends and gains are taxed every year: 23.8% federally on qualified dividends and long-term gains at these income levels, plus state tax. Roth IRAs, and since 2024 Roth 401(k)s, have no required distributions during your lifetime, so converted dollars keep growing untaxed.

Investment allocations can help reduce this drag. For example, using low-cost index funds will likely keep that drag small, but it will not be zero. Say your unspent distributions earn 7% a year and lose 0.5% a year to taxes (an illustrative figure). Over 20 years, $100,000 grows to about $387,000 in a Roth, but only about $352,000 in a taxable account. That’s roughly 9% less. A step-up in basis at death can wipe out the tax on the remaining gains, but it can’t recover the drag already paid.

That’s why a household that won’t spend its required distributions can come out ahead converting at 37%, even if it expects to pay 37% later. The larger your pretax balance relative to your spending, the more this matters.

What if you expect federal tax rates to rise?

Separate legislated changes from hunches. Today’s brackets have no scheduled expiration, so higher rates would take new legislation. A belief that taxes will eventually rise is a scenario, not a plan.

Model at least three futures: lower, unchanged, and higher rates. Then ask how much rates would need to rise, and on which withdrawals. If the dollars you’d convert at 37% would otherwise come out at 24%, rates on those specific dollars would need to climb 13 points just to break even.

Being wrong is expensive. In our $100,000 example, converting at 37% leaves $126,000. Waiting and withdrawing at 24% leaves $152,000.

Don’t feel like this has to be an all or nothing decision either. Partial conversions let you hedge. Convert a slice, keep the rest in pretax retirement savings, and revisit the Roth conversion plan each year with your financial advisor.

Recent tax law changes have shown the danger of going “all-in” on any one strategy. The Tax Cuts and Jobs Act, Secure Act, the One Big Beautiful Bill Act, along with numerous state tax changes, have dramatically changed tax implications for retirees in the last few years.

When waiting until retirement makes more sense

Your peak earning years are often your most expensive years to convert. A better window may open after your paycheck stops but before Social Security benefits begin and required minimum distributions begin (RMD age is currently 73 or 75, depending on your birth year). In those years, smaller annual conversions may be taxed at 22%, 24%, or 32%, instead of 37% on a lump sum while you’re working.

Don’t assume retirement means lower taxes, though. Pensions, deferred compensation, rental income, and large pretax retirement accounts can keep taxable income high for decades.

So compare three paths: convert now, convert during an expected lower-income window, or never convert. Waiting is an active strategy and deserves the same analysis.

What to project before making a conversion

A top-bracket conversion deserves a year-by-year projection. You’ll want to map out these details below in order to create a Roth conversion strategy:

• Income by year: earnings, pensions, Social Security, deferred compensation, and account withdrawals.
• Pretax balances and required distributions under a range of return assumptions.
• State residency and filing status, including a surviving spouse filing single at narrower brackets.
• Charitable giving plan, if you plan on donating to charity through QCDs, donor-advised funds, or leaving a gift through your estate, that needs to be reflected in your Roth conversion plan.
• How you’ll pay the tax, and what that money would otherwise earn. This is very important if you have a large brokerage account as part of your withdrawal plan.
• The full incremental cost, including Medicare premium’s income-based surcharges and deduction phaseouts. If your income is already above Medicare’s top surcharge tier ($750,000 for joint filers), a conversion won’t raise premiums further.
• Your heirs’ tax brackets, if leaving money to family is a priority. Estate planning can play a big role in developing a Roth conversion strategy for high net worth households.

Then judge the result by after-tax wealth and sustainable spending, not lifetime taxes paid or the size of your Roth IRA.

For a more detailed look at how to construct a Roth IRA conversion plan, see our guide here:

https://arnoldmotewealthmanagement.com/roth-conversions-guide/

If you’re weighing a top-bracket conversion, we’d be glad to run these numbers with you in a free introductory meeting. Year-by-year tax projections and detailed Roth IRA conversion plans are a core part of our flat-fee planning at Arnold & Mote Wealth Management.

Schedule a free introductory meeting below