Roth IRA Conversions for High Earners in 2026: When They Make Sense and When They Don't

You have been maxing your 401(k) for years. Every year, $23,500 goes in pre-tax. Your employer match adds more. The balance hits $900,000, then $1.2 million, then more. And somewhere in your late 50s or early 60s, a quiet question starts forming: when I retire and start pulling this money out, how much will the IRS take? A customized tax strategy that includes Roth conversions might be the answer, but it only works in the right circumstances.

A Roth IRA conversion means moving money from a pre-tax traditional IRA or a rolled-over 401(k) into a Roth IRA and paying income tax on the amount converted today. In exchange, every dollar you move grows tax-free from that point forward, and qualified withdrawals in retirement come out with no tax at all. For a high earner in California, the question is not whether that sounds appealing. It is whether the math works for your specific year.

We go deeper into high earner tax planning in The $22,800 Tax Most Investors Don't Know They're Paying.

The Problem with a Large Pre-Tax Balance in Your 50s

A traditional 401(k) or IRA is a powerful savings tool during your earning years. Every dollar you contribute lowers your taxable income now. But that money comes with a deferred tax bill that eventually has to be paid.

Here is what happens when the account grows large enough. At age 73, the IRS requires you to start taking required minimum distributions. The RMD on a $1.5 million IRA at current life expectancy tables is roughly $60,000 a year. That $60,000 is added on top of your Social Security, your pension if you have one, and any other income. It pushes you into higher tax brackets. It can trigger the 3.8% net investment income tax. It can increase your Medicare premiums through IRMAA surcharges. And if the IRA keeps growing because the investments inside it perform well, the RMDs get larger every year.

For a California resident, add state income tax at up to 13.3% on every dollar withdrawn. A $60,000 RMD costs roughly $8,000 to $11,000 in California tax alone, year after year. The 60% tax trap describes exactly this dynamic when retirement income gets taxed at effective rates above 50%.

A Roth conversion lets you pay the tax now, when you choose the amount and the rate, instead of being forced into whatever bracket the RMDs land in later.

How a Roth Conversion Works

Picture a senior director of product at a large tech company based in San Diego. She is 52. She has maxed her 401(k) for fifteen years, and the balance sits at about $1.2 million. She also has about $200,000 in a traditional IRA from a previous employer's plan that she rolled over years ago.

She decides to convert $100,000 of the IRA to a Roth. Here is what happens.

The $100,000 is added to her ordinary income for the year. If she and her spouse file jointly and normally earn $480,000, the conversion pushes them into the 35% federal bracket on those dollars. She also owes California state tax at roughly 9.3% on the converted amount. The total tax on the conversion comes to about $44,000.

But now that $100,000, and all the growth it generates from today forward, will never be taxed again. When she retires and takes distributions from the Roth, every dollar comes out free of federal and state income tax. No RMDs either, because Roth IRAs have no required distributions during the owner's lifetime.

The bet she is making: the tax she pays today at a combined rate of roughly 44% is worth it because the alternative, leaving that $100,000 in the traditional IRA, letting it grow to $250,000 or more by age 73, and paying tax at her future marginal rate on every dollar withdrawn, costs more over the long run.

When a Roth Conversion Makes Sense

The ideal year for a Roth conversion is a lower-income year. For a high earner, those years exist more often than you might think.

Between jobs or on sabbatical. A tech executive who leaves a company and takes six months before the next role starts has a year where their W-2 income is half the normal amount. That is a conversion window. The tax brackets have more room, and every dollar converted at a lower rate is a win.

After relocating from California to Texas or Florida. Converting while a California resident adds 9% to 13.3% state tax on the conversion, depending on your income. Converting after establishing residency in Texas or Florida means zero state tax on the converted amount. For someone planning a move, the optimal sequence is: move first, establish residency, then convert. The year-round tax planning playbook walks through exactly this kind of sequencing across an entire year.

In years with large deductions. A year when you make a significant charitable contribution, pay large medical expenses, or have business losses can create room in your tax bracket for a partial conversion at a lower rate.

When you want tax diversification in retirement. Having a mix of traditional and Roth dollars gives you flexibility. You can pull from the Roth in years when your other income is high, keeping your marginal rate in check. You can draw traditional IRA dollars when your income is lower.

When It Does Not Make Sense

A Roth conversion is not always the right move.

You need the cash to pay the tax. The tax on a conversion must be paid from funds outside the IRA. If you have to dip into the IRA itself to cover the tax, you incur a 10% early withdrawal penalty on that portion if you are under 59 1/2, and you permanently reduce the amount that grows tax-free. A conversion only works when you have liquid funds elsewhere.

You are near the top of a tax bracket. Converting a large amount that pushes you into the next bracket means those marginal dollars are taxed at a higher rate. Partial conversions that stay within your current bracket are generally better than one large conversion that jumps a bracket.

You expect to be in a lower tax bracket in early retirement. Not everyone who earns $400,000 in their 50s spends $400,000 in retirement. If your plan involves a paid-off house, modest living expenses, and most of your income coming from qualified dividends and long-term gains, your effective rate in retirement might be lower than your marginal rate today. Paying tax now to avoid tax later may not be worth it.

Your entity choice complicates the retirement picture. If you run a business, the type of retirement plan you can fund depends on your entity structure. An S corp owner who wants to add a defined benefit plan alongside a Roth strategy needs to coordinate both. A solo 401(k) capped by entity choice might change how much room you have for conversions.

California Adds a Layer

California treats Roth conversions as taxable income, same as the federal government. Converting $100,000 while living in San Diego adds roughly $9,300 to $13,300 in state tax depending on your bracket. That changes the math considerably.

For a client considering a move to Texas or Florida, the ideal sequence is to convert after the residency change. The California Franchise Tax Board looks at several factors to determine when residency ends: days spent in the state, location of primary home, where you work, where you register to vote. A conversion done after you have genuinely left California avoids state tax on the converted amount entirely.

For those staying in California, the strategy is partial conversions in lower-income years and converting only what fits within a reasonable combined rate. The state tax is a cost of doing business, but it is still worth paying if your projected future marginal rate, including California tax on RMDs, is higher than your current combined rate.

A cash balance plan beyond the 401(k) ceiling is another piece of the same puzzle for business owners who want to shelter more income while also thinking about which tax bucket those dollars land in.

FAQ

How much tax will I pay if I convert my IRA to a Roth?

The converted amount is added to your ordinary income and taxed at your marginal tax rate. A $100,000 conversion for a California couple earning $480,000 would cost roughly $44,000 in combined federal and state tax. The exact amount depends on your filing status, total income, and deductions for the year.

Is a Roth conversion worth it for high earners?

It depends on whether your current marginal rate is lower than your projected future rate on those same dollars. For a high earner in peak earning years who expects significant RMDs, a partial conversion in a lower-income year can be worth it. Converting too aggressively in a high-income year and the tax bill may outweigh the benefit.

What is the difference between a Roth conversion and a backdoor Roth?

A backdoor Roth is a specific technique for high earners who cannot contribute directly to a Roth IRA due to income limits. You contribute to a traditional IRA with after-tax dollars and convert it shortly after. A traditional Roth conversion moves pre-tax dollars from a 401(k) or traditional IRA to a Roth and triggers tax on the full amount. The backdoor Roth is simpler when you have no existing pre-tax IRA balance.

What is the 60% trap?

The 60% trap refers to the combined effect of ordinary income tax, the net investment income tax, and Medicare premium surcharges that can push a retiree's effective marginal rate on IRA distributions above 60%. Converting some pre-tax savings to a Roth during your working years reduces the amount subject to RMDs and can help avoid this tax spike.

Does a Roth conversion affect my Medicare premiums?

Yes. The converted amount counts as income in the year of conversion, which can push you above the income thresholds for Medicare Part B and Part D income-related monthly adjustment amounts (IRMAA). Plan conversions carefully to avoid an unexpected surcharge on your premiums two years later. An enrolled agent who focuses on strategy can run the projections for you.

What role does a tax strategist play in Roth conversion planning?

A Roth conversion is not a do-it-yourself calculation. A strategist projects your income across multiple years, models the tax brackets, accounts for California residency and entity structure, and recommends a conversion amount and timing that fits your full picture. The free 15-minute discovery call with Roadmap Tax is the first step. From there, a paid strategy session produces a specific plan with the numbers that apply to your situation.

Ready to run the math on whether a Roth conversion fits your tax picture? Book a free 15-minute discovery call at (619) 280-2700 or email info@RoadmapTax.com. We will tell you whether a deeper strategy session makes sense for your situation.