Roth IRA Conversions in the Summer? Why Now May Be the Sweet Spot

Many investors only start seriously thinking about Roth conversions (if at all) once the year starts wrapping up.

This is because you can no longer "recharacterize" or "undo" Roth conversions if you miscalculate and convert too much, putting you in a higher tax bracket.

It's often wise to wait until you have a fair idea of how much income you'll have from all sources, before committing to a Roth conversion, but there are good reasons to convert earlier.

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Why do a Roth conversion this year at all?

If you aren't familiar with Roth conversions, or never looked into the process, let's break down the details.

A Roth IRA is the opposite of a traditional IRA. Rather than getting a deduction upfront and paying the tax someday in the future, a Roth account lets you pay tax on the seed, not the harvest.

There are contribution limits ($7,000, or $8,000 if you are age 50 or older) as well as income caps ($150,000 for single filers and $236,000 for joint filers) for maximum contributions to a Roth.

If you have a Roth option in your 401(k), you can contribute no matter what your income is.

Better still, there are no income limits for Roth conversions.

A conversion is when you take IRA, or old 401(k), money and pay the tax to make it a Roth. If you have room in your current tax bracket, it could make a lot of sense to convert some of your existing retirement accounts to a Roth.

It's painful to pay that additional tax today, but it can save you a substantial amount over your lifetime with the tax-free growth you'll get in the future.

Today, we sit in one of the lowest tax environments in many decades. If you expect taxes to increase over your lifetime (whether by tax law changes or simply by you earning more in the future), it would be a good idea to pay a little more tax now (by converting to a Roth) than to pay a lot more tax later.

Should I convert now, or wait until the end of the year?

Here are some points in favor of doing a Roth conversion now, even midyear.

For most people, you already have a pretty good idea by this time of year how much you'll likely make in 2025. If you work a W-2 job, any significant bonus or raise is likely to happen in January or later, so you can predict your 2025 total income.

If you've been taking advantage of high-yield savings accounts or CDs, those interest rates are coming down, and you're likely to earn less in the next six months, not more.

The market has been shaky for the last several months, to say the least. If you'll need to liquidate assets to pay taxes on a Roth conversion, you want to "sell high" rather than pulling money out in a down market.

On the flip side, if you've lost money in your IRA this year, you could convert those funds to a Roth while they're down, thus lowering the taxable amount for conversion.

Converting now allows you to spread the tax burden over the next two quarterly payments (September 15 and January 15). If you convert after August 31, you'll need to pay all that tax in January.

How much should I convert?

Tax brackets are likely to remain the same for the next few years. The One Big Beautiful Bill extends the current tax rates indefinitely.

Prior to this year, there was a distinct possibility that the tax cuts would expire, and rates would rise in 2026.

Because of this, many advisers recommended significantly larger Roth conversions in 2025. It might be wiser not to be too aggressive with Roth conversions, as we appear to have more time now.

In most cases, it makes sense to at least fill your current tax bracket. Keep in mind that your standard (or itemized) deductions will lower your tax burden.

In addition, you pay the higher tax only on any amount above the next bracket, so if you miscalculate by a small amount, it will usually not affect the tax you pay on the majority of the conversion.

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If you're in the 22% bracket, it might be fine to convert up through the 24% bracket, as well. The delta from 22% to 24% is not very big, and the 24% bracket gives you significantly more room (almost $200,000 for a married couple).

It should still save you money in the long term, even if you pay slightly more this year, since you'll have so many more years of tax-free growth in the future.

Talk to a tax attorney or a forward-thinking CPA (many CPAs are not primarily long-term planners).

Most financial advisers don't give tax advice, so you'll want to find someone who can and will give you a recommendation in writing on how to reduce your long-term tax burden using Roth conversions.

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