A Roth conversion — moving money from a traditional IRA or 401(k) into a Roth IRA — triggers immediate income tax on the converted amount but locks in tax-free growth and withdrawals forever after. The strategy only makes sense in years when your income is unusually low, putting you in a lower bracket than you’ll likely be in retirement. Here’s when Houston households should pull the trigger.
The basic mechanic
You convert $50,000 from a traditional IRA to a Roth. That $50,000 gets added to your taxable income for the year. You owe income tax on it now. From that point forward, the Roth grows tax-free and qualified withdrawals are tax-free for life.
When to convert
The math works best when your current bracket is meaningfully lower than your retirement bracket. Common scenarios:
- Year between jobs — you have low earned income and time before next role starts
- Sabbatical or career break
- Early retirement years before Social Security and RMDs kick in (the “gap years,” ages 60-72 for many)
- Year your business had unusually low net income due to investment in growth
- Year you took a large business loss that put you in a lower bracket
The retirement gap years
This is the cleanest play. Imagine retiring at 62, claiming Social Security at 70. Years 62-70 are your “gap years.” You may be drawing modestly from taxable accounts and have very low taxable income. Each year you can convert $50,000-$100,000 from traditional to Roth at the 12-22% bracket, when your retirement bracket (after RMDs and Social Security kick in) might be 24-32%.
Doing this for 8 years can convert $400,000-$800,000 of pre-tax retirement assets to Roth at low tax cost — saving $80,000-$200,000+ over your retirement.
Conversion size matters
Convert too much in one year and you push yourself into a higher bracket. The art is converting up to but not past a key bracket line:
- 2024 12% to 22% bracket break: $94,300 (joint) / $47,150 (single)
- 22% to 24% bracket break: $201,050 (joint) / $100,525 (single)
- 24% to 32% bracket break: $383,900 (joint) / $191,950 (single)
If you’re currently in the 22% bracket and want to stay there, convert up to the threshold and stop.
Pay the tax from outside the IRA
The conversion only makes sense if you can pay the tax from non-retirement funds (taxable brokerage, savings). If you withhold tax from the conversion itself, you reduce the amount actually moved to the Roth, which dilutes the strategy.
The 5-year rule
Each conversion has its own 5-year holding period. If you withdraw converted dollars before 5 years (and before age 59.5), you owe a 10% penalty. Plan accordingly.
Houston angle
Texas has no state income tax, so Roth conversions only trigger federal tax. This is a meaningful advantage over California or New York retirees doing the same strategy — their state takes another bite. For Houston-based households planning early retirement, Roth conversions are particularly powerful.
Common mistakes
- Converting too much and crossing into a higher bracket
- Paying tax from the IRA itself (reduces growth potential)
- Forgetting Medicare premium impact — conversion income raises AGI which affects IRMAA Medicare premiums
- Converting before 59.5 and withdrawing within 5 years
- Not coordinating with current-year deductions (charitable bunching, etc.)
Bottom line
Roth conversions are powerful in the right years and pointless in the wrong years. Identify the bracket gap, convert just to the bracket line, and pay tax from non-retirement funds. Done across 5-10 years of opportunity, this can shift hundreds of thousands of pre-tax retirement assets to tax-free Roth.
To run the conversion math for your specific situation, call (832) 594-0339 or contact us. We integrate this with retirement and tax planning for clients approaching or in early retirement.