Imagine sitting down with your tax preparer in March 2027 and discovering that you might have been able to convert another $50,000 from your traditional IRA at a favorable tax rate in 2026.

Your income came in lower than expected. Maybe your business slowed down, or a consulting contract ended earlier than anticipated.

Whatever the reason, the opportunity was there.

But there’s a problem. The year is already closed.

Unlike IRA contributions, which generally can be made until the following April’s tax-filing deadline, a direct Roth conversion must be completed by December 31 to count for that tax year.

And there’s another difference worth understanding. Under IRS rules, Roth conversions made since 2018 cannot be recharacterized back into traditional IRAs. Once the conversion is completed, you cannot undo it.

But here’s what I think is the bigger mistake.

It’s building a multi-year Roth conversion plan and never checking it against the year’s actual circumstances before the year closes.

Because a good conversion year only looks good when you compare it with the years ahead.

Why a Roth Conversion Plan Still Needs a Year-End Review

When we develop a Roth conversion strategy for a client, we’re making decisions about when it makes sense to recognize taxable income over multiple years.

That requires projecting income, retirement withdrawals, future taxes, and the amount of money likely to remain in tax-deferred accounts later in retirement.

I’ve discussed how we identify those opportunities in The Retirement Tax Window Most People Miss.

Once we’ve identified a strategy, we establish a conversion schedule based on what we know at the time.

But that schedule is a starting point, not a standing instruction.

Consider a retiree who’s winding down a consulting business. We build a plan in January expecting $100,000 of consulting income, only to learn in October that their actual income will likely be closer to $50,000.

The original conversion schedule might still work.

But the assumptions supporting it have changed.

And if we’re not reviewing those changes before December 31, we could miss an opportunity to recognize income at a lower cost than originally anticipated.

The reverse can happen, too. A large capital gain, unexpected bonus, or substantial retirement withdrawal might make the planned conversion more expensive than expected.

That’s why we distinguish between establishing the strategy and managing its implementation.

The plan sets the path. The fall review sets the pace.

Four Questions That Drive Our Year-End Roth Conversion Decisions

By the fall, we generally have a much clearer picture of how a client’s year is shaping up.

We can compare actual income against our original projections, estimate what remains for the year, and evaluate whether the planned conversion still makes sense.

Four questions drive that review.

1. What Changed Since We Established the Plan?

The first thing I want to understand is whether the assumptions behind our original conversion schedule still hold.

Think back to our retiree winding down the consulting business. By October, their income is running $50,000 below what we projected in January.

Now we need to determine what that difference means for the conversion schedule.

In our planning process, this involves updating the current-year tax projection and comparing it with the assumptions built into the longer-term retirement plan.

A decline in income isn’t the only reason to make an adjustment.

An unusually large deduction might reduce taxable income. A market decline could allow us to convert more shares at a lower current value. Conversely, an unexpected capital gain or retirement withdrawal might make converting less attractive.

None of those developments automatically justifies changing the strategy.

But they give us a reason to rerun the numbers.

If the current year has become materially more attractive, I’ll want to know whether we should move some conversions originally scheduled for future years into the current one.

The important thing is that we’re responding to new information rather than following an outdated schedule.

2. Is This Year More Attractive Than the Years We’d Be Taking Conversions From?

Finding additional room in a tax bracket doesn’t necessarily mean we should use it.

For our retiree, we could potentially increase the planned conversion by $50,000. But whether that makes sense depends on what we’d otherwise do with those dollars in future years.

What if next year is expected to be even more favorable?

What if the additional conversion triggers a cost elsewhere in the plan?

And what if the projected benefits don’t justify paying taxes earlier than necessary?

Research by Edward McQuarrie and James DiLellio, published in the Journal of Financial Planning, examines how Roth conversion outcomes depend on factors such as future tax rates, investment horizons, and how the conversion taxes are funded.

Their analysis, The Arithmetic of Roth Conversions, illustrates why conversion decisions can’t be reduced to filling the available space in a tax bracket.

In our work, that means comparing the revised conversion schedule against the original plan and measuring how the decision changes projected long-term outcomes.

We’re not simply asking whether we can convert more this year.

We’re asking whether moving a conversion from one year to another actually makes the plan better.

3. What Is Already Scheduled to Change in the Next Two Years?

Before accelerating a conversion, we also need to consider what’s immediately ahead.

For our consulting retiree, suppose a deferred compensation payment is scheduled for 2027.

That payment could make 2027 a more expensive year to recognize additional IRA income, strengthening the case for converting more in 2026.

But other circumstances might point in the opposite direction.

For example, a conversion today could affect Medicare premiums two years from now. Or the client might anticipate a large deduction next year that makes waiting more attractive.

I covered the interaction of these retirement milestones in Your Tax Window Doesn’t Close All at Once.

For the year-end review, the question is more specific.

Do the changes we know are coming justify moving part of our planned conversions into this year?

And if we do, are we accurately accounting for the costs associated with that decision?

4. Can We Pay the Taxes Without Disrupting the Plan?

This is where an otherwise attractive conversion can become a poor financial decision.

Generally, it’s advantageous to pay conversion taxes using money outside the traditional IRA, particularly when that money can be used without triggering substantial additional taxes.

But that money may also be earmarked for living expenses, property improvements, healthcare, or other anticipated costs.

That’s why we coordinate the conversion decision with the household’s cash management plan.

We look at the additional taxes, determine where the payment would come from, and consider whether using those funds would compromise other priorities.

We also coordinate any required estimated tax payments or withholding adjustments.

A conversion shouldn’t create a cash problem simply because the tax projection suggests an opportunity.

How a Good Roth Conversion Plan Can Miss a Valuable Year

Let’s put these questions together.

Consider our hypothetical retiree with a substantial traditional IRA and several years remaining before required minimum distributions begin.

Their retirement plan calls for converting $50,000 annually over the next several years.

That schedule was established using projected consulting income, investment earnings, future retirement withdrawals, and expected tax rates.

Then something changes.

During 2026, the retiree begins winding down the consulting business.

By October, it becomes clear that income will be approximately $50,000 lower than originally projected.

Meanwhile, a deferred compensation payment scheduled for 2027 is expected to increase taxable income next year.

Now we have a decision to make.

Do we stick with the original $50,000 conversion for 2026?

Or could it make sense to convert $100,000 in 2026 and reduce the amount originally planned for 2027?

Under the original plan, the client converts $50,000 in 2026 and another $50,000 in 2027.

Under the revised approach, the client converts $100,000 in 2026 and nothing in 2027.

Either way, the total comes to $100,000 over those two years.

What changed is the timing.

If the client’s lower consulting income makes 2026 less expensive than 2027, the revised schedule could reduce the total tax cost.

But we wouldn’t stop at the tax bracket comparison.

We’d calculate the additional current-year tax, evaluate other income-related consequences, confirm that cash is available to pay the bill, and consider how the revised timing affects the broader retirement projections.

We also need to remember that a lower tax rate today doesn’t guarantee a successful conversion.

In his September 2024 paper, Net Present Value Analysis of Roth Conversions, Edward McQuarrie identifies taxpayers who have accumulated substantial tax-deferred savings during high-earning years but temporarily find themselves in a lower tax bracket as among the least risky candidates for conversion.

That’s particularly relevant to our retiree.

The temporary income decline could create an attractive opportunity, especially if future retirement distributions are expected to be taxed at higher rates.

But the paper also cautions that the ultimate value of a conversion depends on uncertain future tax rates and the timing of the potential savings.

That’s why we’d measure the expected benefit rather than assume the additional $50,000 conversion is automatically worthwhile.

If the updated calculations support accelerating the conversion, we’d coordinate the transaction before year-end.

Now imagine that review never happens.

The client goes through the holidays and doesn’t revisit the figures until meeting with the tax preparer in March 2027.

At that point, the income shortfall is obvious.

The 2026 tax return shows that income was substantially lower than originally anticipated.

But it’s too late to initiate a direct Roth conversion for 2026.

The client can still convert in 2027, but the income and tax circumstances will be different.

And the opportunity to shift that additional $50,000 into 2026 is gone.

The original retirement plan wasn’t necessarily flawed.

The problem was that nobody compared what actually happened with what the plan expected while there was still time to act.

A Roth Conversion Isn’t Complete Just Because You’ve Decided to Make One

There’s one final part of our year-end process worth emphasizing.

Once we’ve decided how much to convert, the transaction still needs to be completed.

That means coordinating with the retirement account custodian, confirming the appropriate assets and dollar amount, and making sure the transaction is processed within the applicable deadline.

For clients whose retirement accounts are held at Charles Schwab, we verify the relevant year-end processing cutoff before initiating the transaction.

As Schwab Advisor Services explains, Roth conversions are among the transactions subject to year-end processing schedules and cutoff times.

We also need to consider whether the conversion involves cash or securities, whether any account transfers are necessary, and whether tax payment arrangements are in place.

And because the IRS prohibits recharacterizing Roth conversions made since 2018, I want the tax projection and funding decision settled before the transaction takes place.

The conversion amount is only part of the decision.

Getting the transaction completed correctly is what turns the strategy into action.

The Plan Sets the Path. The Fall Review Sets the Pace.

A Roth conversion strategy shouldn’t be rebuilt from scratch every December.

But it shouldn’t run on autopilot, either.

In our work with clients, the multi-year plan gives us a framework for deciding when it may make sense to recognize income.

The annual review gives us a chance to respond to what actually happened during the year.

Sometimes that means accelerating conversions.

Sometimes it means postponing them.

And sometimes, after reviewing the numbers, the original schedule is still the right one.

The value comes from making that decision deliberately, with current information, while we still have the ability to act.

That’s why I believe a fall tax review belongs on the calendar of anyone pursuing a multi-year Roth conversion strategy.

Don’t wait until your tax return is being prepared to discover whether the previous year offered an opportunity.

By then, the decision may already have been made for you.

At Franklin Madison Private Wealth, we help pre-retirees and retirees coordinate Roth conversion decisions with their longer-term retirement income and tax strategies.

If you’ve accumulated substantial savings in traditional IRAs or 401(k)s and want to understand whether your current strategy is making the most of the years available to you, schedule an introductory conversation.

Because once you’ve identified the years when converting makes sense, there’s another question that deserves just as much attention:

How much should you actually convert in each of those years?

Related Reading

A Roth Conversion Is Not the Goal

Your Cash Reserve Is Supposed to Run Low

The Tax Bill You’re Leaving Your Kids

Will Your Spouse Pay Higher Taxes After You’re Gone?

Sources

Internal Revenue Service, “Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).”
https://www.irs.gov/publications/p590a

Fidelity Investments, “Why Convert to a Roth IRA Now?”
https://www.fidelity.com/learning-center/personal-finance/retirement/answers-to-roth-conversion-questions

Edward F. McQuarrie and James A. DiLellio, “The Arithmetic of Roth Conversions,” Journal of Financial Planning, May 2023.
https://www.financialplanningassociation.org/learning/publications/journal/MAY23-arithmetic-roth-conversions-OPEN

Edward F. McQuarrie, “Net Present Value Analysis of Roth Conversions,” Journal of Financial Planning, September 2024.
https://www.financialplanningassociation.org/learning/publications/journal/SEP24-net-present-value-analysis-roth-conversions-OPEN

Charles Schwab Advisor Services, “Digital Tools to Simplify End-of-Year Tasks.”
https://advisorservices.schwab.com/insights-hub/end-of-year-digital-tool-tips

Internal Revenue Service, “Retirement Plans FAQs Regarding IRAs.”
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras