Trendy Financial Planning Tool is not Right for Everyone

Published on 05/30/2026

Trendy Financial Planning Tool is not Right for Everyone

Roth IRA conversions were first allowed in 1998, but you would think it’s a brand new strategy judging by financial headlines and adviser seminar invitations.

While an option that every investor should understand, this trendy financial planning tool doesn’t make sense for everyone.

A Roth conversion is the process of moving dollars from pre-tax retirement accounts into after-tax Roth accounts. Investors will owe ordinary income taxes on that amount in the year of conversion.

The practice is essentially a bet that paying extra taxes now is worth it in exchange for tax-free withdrawals later. And for some investors, Roth conversions are a wonderful planning tool.

Fidelity Investments reported a 44% annual increase in total Roth conversions during the first quarter of 2024 and a 36% year-over-year increase in 2025.

Increased popularity in Roth accounts likely stems from the federal tax cuts of 2018, and the fear that those cuts would expire at the end of 2025. Many investors felt that converting dollars before their federal tax bracket increased was a worthy exercise.

But because those tax cuts were made permanent last year, Roth conversions should not be viewed as a no-brainer.

Roth conversions are best suited for 4 types of investors:

• Those who want to leave tax-free gifts to their children.

• Those who are worried the government will raise taxes in the future.

• Those with large pre-tax retirement accounts who expect to land in a higher tax bracket when required minimum distributions (RMD’s) begin.

• Those whose income is temporarily lower than normal due to a pause in employment, or have retired but are not yet taking Social Security or IRA withdrawals.

The first thing to consider when deciding if Roth conversions are beneficial is whether you have enough money in non-retirement (brokerage) accounts to pay the tax bill. It’s counterproductive to withdraw more assets out of retirement accounts just to pay taxes.

Your risk tolerance should also play a role in this decision. If you are an aggressive investor, your higher investment growth potential makes the tax-free Roth more attractive than a conservative investor with lower expected returns.

Timing is key, too. The ideal time to convert dollars into Roth accounts is during market downturns. If 1,000 shares of a stock or fund just fell 15%, you will pay lower taxes on lower valuations; and if that investment bounces back after your conversion is complete, the growth will be tax-free.

The other timing factor is your age. For the conversions to pay off, the tax-free compounding needs time. Generally speaking, the younger someone is, the more tax-free growth can be achieved from a Roth conversion and the more attractive this strategy becomes.

After reviewing their situations, plenty of smart investors will determine that they are better off avoiding the hype and not converting.

The math for the average American retiree does not justify an unnecessary increase in taxes, especially those with portfolios that already include a diversified mix of pre-tax, Roth, and non-qualified (brokerage) accounts.

Such investors have the flexibility to manage their taxable income each year by controlling how much is withdrawn from each bucket.

Investors should also be mindful of some negative effects that Roth conversions sometimes create; like potentially higher Medicare premiums or losing the ability to claim certain tax deductions because of higher taxable income.

If you are unsure whether Roth conversions are right for you, then you’re in the majority — the calculation is not simple.

While free online calculators might be a good starting point, they have trouble taking your entire financial picture into consideration. Consider asking a professional to build a detailed analysis that reflects your specific situation and priorities.

Plenty of financial conversations begin with the objective of paying as little tax as possible. If you’re committing to a strategy that will increase your short-term tax bill, you want to make sure it will pay off in the long run.

Authors

Ben Marks & Matt Arnold

Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser. Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.

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03/14/2026