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5 Roth Conversion Mistakes That Cost Real Money
A Roth conversion is simple to execute and easy to get wrong, and every mistake on this list has cost real people real five-figure sums. Each is avoidable with a calculator and five minutes.1. Converting Into the Next Bracket by Accident
The conversion adds ordinary income on top of everything else — salary, pension, dividends. Fill the 22% bracket exactly and a conversion is a bargain; drift into the 24% bracket without meaning to, and you paid more than necessary. Compute your remaining bracket room before each conversion tranche; December conversions especially, when most of the year's income is known.
2. Paying the Tax From the Account
Withholding taxes from the conversion itself shrinks the amount that compounds tax-free. Under 59½, it can even trigger penalties on the withheld portion. The clean pattern: convert the full amount, pay the tax from a taxable account.
3. Ignoring Medicare's IRMAA
Conversion income from two years ago sets this year's Medicare premium surcharges — the lookback is brutal and unforgiving. Retirees within 24 months of Medicare enrollment should model IRMAA tiers before converting anything; a badly timed $100,000 conversion can add thousands per year, per person, in premiums.
4. Forgetting the State
Moving from a no-income-tax state to a high-tax one (or vice versa) around a conversion changes the math. Conversions are taxed where you live when they happen; timing a large one to the cheaper state is a known — and legal — planning lever.
5. Misunderstanding the Five-Year Clocks
Each conversion has its own five-year clock for penalty-free access before 59½, and inherited Roth treatment adds its own rules. Withdraw converted principal too early and penalties can apply that a spreadsheet would have flagged. Track each conversion year separately.
None of these make conversions bad. They make conversions a measured move, not a reflex.
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