5 Reasons NOT to Do a Roth Conversion in 2026

If you're thinking about doing a Roth conversion in 2026, there's an important deadline approaching. To count toward the 2026 tax year, your conversion generally needs to be completed by December 31st. But before you rush to convert your traditional IRA, 401(k), or TSP into a Roth IRA, there's a bigger question you need to ask:

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Should you even be doing a Roth conversion?

Roth conversions can be a powerful retirement planning strategy, offering tax-free growth, qualified tax-free withdrawals, and potential tax-free inheritance for your beneficiaries. But they're not right for everyone. Making the wrong decision could mean paying unnecessary taxes, increasing your Medicare premiums, or creating financial consequences you didn't anticipate.

In this lesson, I'll walk you through five reasons you might want to think twice before doing a Roth conversion. And if you've decided a conversion makes sense, we'll also explore how Roth-friendly annuities may fit into your retirement strategy.

Because deciding whether to convert is only half the equation. You also need to decide where that money should go.

Why You Should Think Twice Before a Roth Conversion

A Roth conversion can offer significant long-term advantages, but timing and planning matter. Before making a decision, there are five important factors you should consider.

Reason #1: You Need the Money Soon

One of the biggest advantages of a Roth IRA is the opportunity for tax-free growth and qualified tax-free withdrawals.

But what if you're converting money today, paying taxes on it, and then immediately spending it?

You may not be getting the full long-term benefit of the conversion.

A question I frequently hear is: What about the five-year Roth rule?

There are actually two different five-year rules you need to understand.

The first five-year rule applies to qualified Roth IRA distributions.

Generally, for your Roth IRA earnings to qualify for tax-free withdrawals, you must be at least 59½ and satisfy the five-year holding requirement.

Here's something important: Your Roth IRAs share the same five-year starting date, based on the first tax year you funded any Roth IRA. You don't start a brand-new qualified distribution clock every time you open another Roth IRA.

The second five-year rule applies to each individual conversion.

Each conversion has its own five-year period related to potential early withdrawal penalties.

However, once you're 59½, that particular early withdrawal penalty generally is no longer an issue.

The takeaway? Just because you can access your Roth money doesn't necessarily mean converting money you need immediately is the best strategy.

Before converting, consider when you'll actually need the money and whether you'll have enough time to benefit from the potential tax-free growth.

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Reason #2: You Don't Have a Plan to Pay the Conversion Taxes

Here's a question you absolutely need to answer before doing a Roth conversion:

Where will the money come from to pay the taxes?

When you convert traditional IRA money into a Roth IRA, the taxable amount is generally added to your income for that year.

For example, a $100,000 Roth conversion could add $100,000 to your taxable income. Depending on your overall income and tax situation, that could create a significant tax bill.

Ideally, you have money outside of your retirement accounts available to pay those taxes. That allows you to keep the full converted amount inside your Roth IRA.

But what if you don't have that money available?

Does that automatically mean you shouldn't convert?

Not necessarily.

Certain Roth-friendly annuities offer bonuses or interest crediting opportunities that may help offset some of the cost of converting. These features can be worth understanding as part of your overall retirement strategy.

However, it's important to understand that bonuses and interest crediting opportunities do not eliminate your tax liability. They also come with contract terms and trade-offs that need to be evaluated.

The important thing is to have a plan for the taxes before you convert.

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Reason #3: Your Future Tax Rate May Be Lower

This reason is all about timing.

You need to consider whether you're better off paying taxes today or paying them later.

Let's say you're currently in a relatively high tax bracket, but you expect your income to drop significantly after retirement.

It might make more sense to wait until you're in a lower tax bracket before converting.

But there's another side to this conversation.

What if you're already retired but haven't started taking required minimum distributions (RMDs)?

You might be in a lower tax bracket today, but your income could increase once Social Security, pensions, and RMDs come into play.

There's also something else to consider: what happens to your surviving spouse?

A surviving spouse could eventually face a higher tax bill because they'll be filing as a single taxpayer instead of married filing jointly.

This is commonly referred to as the widow's penalty.

That's why we don't just look at what your taxes are this year. We want to understand what your potential tax situation could look like throughout retirement.

And remember, Roth conversions don't have to be an all-or-nothing decision.

You may be able to convert smaller amounts over several years, coordinating those conversions with your income and tax situation.

The goal is to look at the bigger picture rather than making a decision based on one year's tax bracket.

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Reason #4: Your Conversion Could Trigger Other Costs

Your income tax bill isn't necessarily the only cost associated with a Roth conversion.

There are three additional areas you need to consider.

1. Medicare Premiums and IRMAA

A Roth conversion could increase your income enough to trigger IRMAA, which stands for Income-Related Monthly Adjustment Amount.

Medicare generally looks at your income from two years earlier to determine whether you'll pay higher Part B and Part D premiums.

Here's what's important: IRMAA has income thresholds.

Crossing one of those thresholds, even by one dollar, could move you into a higher Medicare premium tier.

Does that automatically mean you shouldn't convert?

Absolutely not.

Sometimes paying higher Medicare premiums temporarily may be worthwhile if it creates a better long-term tax outcome. But you need to understand the potential cost before making that decision.

2. Social Security Taxation

Another consideration is how a Roth conversion could affect your Social Security benefits.

Increasing your income through a Roth conversion could cause more of your Social Security benefits to become taxable.

That's an additional cost you need to account for when evaluating your conversion strategy.

3. Tax Credits and Deductions

Because Roth conversions increase your taxable income, they can also affect your eligibility for certain income-based tax credits and deductions.

This is why you shouldn't evaluate a Roth conversion based on your tax bracket alone.

You need to look at the bigger financial picture, including your Medicare premiums, Social Security taxation, and other potential tax consequences.

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Reason #5: You're Leaving Your IRA to Charity

This is an important consideration if you're planning to leave your traditional IRA to a qualified charity.

Converting those dollars into a Roth IRA might not make sense.

Here's why.

Qualified charities generally don't pay income taxes when they inherit traditional IRA assets.

So why voluntarily pay taxes to convert money that a charity could receive without owing income taxes?

You could be creating an unnecessary tax expense.

Now, this is different from leaving retirement assets to your children or other individual beneficiaries.

For those beneficiaries, a Roth IRA can provide a valuable advantage.

Qualified Roth IRA withdrawals can provide an income tax-free inheritance, which may be one compelling reason to consider a conversion.

Your legacy goals should absolutely be part of your Roth conversion planning.

When Does a Roth Conversion Make Sense?

We've covered five reasons you might not want to convert, but there are also some excellent reasons why people choose to do Roth conversions.

These potential benefits include:

• Tax-Free Growth: Your Roth IRA has the opportunity to grow without future income taxes on qualified distributions.

• Qualified Tax-Free Withdrawals: Once the applicable requirements are satisfied, qualified withdrawals can be received tax-free.

• No Lifetime RMDs for the Original Owner: Roth IRA owners are not subject to lifetime required minimum distributions.

• Tax-Free Inheritance: Qualified Roth IRA distributions can provide an income tax-free inheritance for your beneficiaries.

So let's say you've weighed the pros and cons, evaluated your tax situation, and decided a Roth conversion makes sense.

What happens next?

Here's the big question:

Where Should Your Roth Money Go?

A Roth IRA is an account with specific tax treatment. It isn't an investment or an insurance product by itself.

You still need to decide how to position those assets inside the account.

One option is your equities bucket.

This is where you might hold stocks, ETFs, and other market-based investments. These investments offer growth potential, but they also come with market volatility and the possibility of losses.

Equities can certainly play an important role in a diversified retirement portfolio.

But there's another bucket I specialize in: your safe money bucket.

This is where we look at solutions designed to protect principal from market declines, offer interest crediting opportunities, and potentially provide guaranteed lifetime income.

One of the primary tools we use is annuities, specifically certain annuities designed to support Roth conversion strategies.

Let's call these Roth-friendly annuities.

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Four Potential Benefits of Roth-Friendly Annuities

Certain fixed indexed annuities (FIAs) can offer features that may make them worth considering as part of a Roth retirement strategy.

Here are four potential benefits.

1. Principal Protection

With a fixed indexed annuity, your protected contract value isn't directly exposed to stock market declines.

You don't receive a negative index credit simply because the underlying index goes down.

This can be an important consideration for someone who wants the opportunity for interest crediting without directly exposing that portion of their retirement savings to market losses.

2. A Safe Money Allocation in Your Portfolio

Think about your retirement portfolio in terms of different buckets.

You might have an equities bucket for market-based growth and a safe money bucket for protected accumulation or income planning.

It's about understanding how those different parts of your retirement plan can work together.

The goal isn't necessarily to choose one or the other. It's about building a strategy that reflects your retirement goals and your comfort with risk.

3. Interest Crediting Potential

Fixed indexed annuities can earn interest based on the performance of external market indexes.

You're not directly invested in the stock market. Instead, the annuity tracks an index according to the contract's crediting method.

With a fixed indexed annuity, you generally have a 0% floor for index credits, meaning you don't receive a negative index credit because the market index declines. At the same time, you have the potential to earn interest when the index performs positively, subject to the contract's caps, participation rates, spreads, and other terms.

This can provide an opportunity for protected accumulation with potential upside.

4. Guaranteed Lifetime Income Options

Some annuities offer contractual guarantees that can provide income for life.

This may be accomplished through a fixed indexed annuity with an income rider.

And when the applicable Roth IRA distribution requirements are satisfied, qualified income distributions can be received tax-free.

A Roth-friendly annuity can potentially serve different purposes within your retirement plan:

• Protected accumulation

• Guaranteed lifetime income

• A combination of both

The right approach depends on what you're trying to accomplish with your retirement savings.

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What Makes an Annuity Roth-Friendly?

You might be wondering what specifically makes an annuity Roth-friendly.

It comes down to certain insurance carriers offering features that can make ongoing Roth conversion planning easier.

For example, some carriers allow partial conversions from a traditional IRA annuity into a Roth IRA annuity over multiple years.

This gives you flexibility to coordinate your conversion amounts with your tax planning.

Another feature some Roth-friendly annuity products offer is bonuses or interest crediting opportunities that may help offset part of the cost of conversion taxes.

Now, I want to be clear about something.

Bonuses don't eliminate your tax liability. You're still responsible for paying the applicable taxes on the conversion.

Instead, these features may help offset some of that expense, depending on the product and its contract terms.

These are features worth evaluating based on your portfolio structure, retirement income needs, and legacy goals.

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Why Ongoing Roth Conversion Planning Matters

Here's something I especially want to emphasize.

Roth conversion planning isn't necessarily a one-time decision.

When you work with us, we help coordinate the Roth conversion process year after year.

Typically, during the fourth quarter, we revisit your strategy and help coordinate with your tax professional to determine what conversion amount may make sense for your situation.

Then we work with the Roth-friendly insurance carrier to facilitate the conversion paperwork.

The carrier processes and reports the applicable transactions, providing the IRA paperwork you'll need to give to your tax professional at tax time.

That means you have a team helping coordinate the moving parts.

For many clients, that ongoing support is an important part of the value.

Because Roth conversion planning isn't just about selecting an annuity. It's about having a coordinated process that considers your taxes, retirement income, and long-term financial goals.

Three Questions to Ask Before Doing a Roth Conversion

Before moving forward with a Roth conversion, I want you to think about three important questions.

1. Should You Convert?

We've covered five reasons a Roth conversion might not make sense, along with the potential long-term benefits.

You need to evaluate your current tax situation, future income, Medicare premiums, and legacy goals before deciding whether converting is right for you.

2. How Much Should You Convert?

Converting everything in one year isn't necessarily the best strategy.

Smaller conversions spread over several years may make more sense, allowing you to coordinate the amounts with your tax situation and retirement income needs.

3. Where Should Your Money Go?

If you decide to convert, you still need to determine how those Roth dollars should be positioned.

Do you want market-based growth, principal protection, interest crediting potential, or guaranteed income for life that can be received tax-free when applicable distribution requirements are met?

The answer depends on your personal retirement goals.

The right Roth conversion starts with the right plan.

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What to Do Next

If you're approaching retirement or you're already retired and interested in exploring how a Roth-friendly annuity might fit into your retirement strategy, I'd love to have a conversation with you.

Visit visit Retirement Income School™ and click Book a Q&A Call at the top of the page.

We'll talk about your situation, what you're hoping to accomplish, and whether the safe money solutions I specialize in might be a good fit for you.

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Learn more at  Retirement Income School™

Schedule a Retirement Income Q&A Call. — I'd love to support you!

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 DISCLAIMER:
The information in this lesson is provided for general educational purposes only and does not constitute financial, legal, or tax advice. Retirement Income School™ and Dr. Amanda Barrientez do not provide individual investment recommendations. Always consult with a licensed advisor or tax professional before implementing any strategy discussed.

This content is for educational purposes only and is not financial, legal, or tax advice. Annuities are not appropriate for everyone. Benefits, costs, and restrictions vary by contract, and guarantees depend on the issuing insurer’s claims-paying ability. Consult qualified professionals before making retirement or rollover decisions.