3 Signs 2026 Could Be the Perfect Year to Do a Roth IRA Conversion
Key Points
2026 could be a good year for a Roth IRA conversion if you're in a low tax bracket.
The new senior tax deduction could make Roth IRA conversions less painful for older adults for the next few years.
Doing a Roth IRA conversion when your portfolio is down could save you money.
- The $23,760 Social Security bonus most retirees completely overlook ›
You want Roth savings in retirement, so you don't have to pay taxes on your withdrawals. But so far, most of your savings are in traditional IRAs or 401(k)s. That's not a huge problem. It just means you'll need to do Roth IRA conversions to change some of your tax-deferred savings into Roth savings.
That means paying taxes on the converted funds in the year you move the money to your Roth IRA. It needs careful handling so you don't walk away with a surprise bill. Here are three signs 2026 could be the perfect time for you to do a Roth IRA conversion.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Image source: Getty Images.
1. You're in a low tax bracket
Roth IRA conversions are best done when you're in a low tax bracket. This way, you'll pay less in taxes when you convert. After that, your money will begin to grow tax-free, though you can't withdraw converted funds penalty-free until Jan. 1 of the fifth year following the conversion. For example, if you do a Roth IRA conversion in 2026, the clock starts on Jan. 1, 2026, and you can withdraw the money penalty-free on Jan. 1, 2031.
If your income is lower this year than in years past, perhaps due to a job loss or retirement, that makes 2026 a great year to go ahead with a Roth IRA conversion. You don't have to convert all your tax-deferred savings at once. Consider converting just enough to take you to the top of your current tax bracket. Then, convert a little more each year as necessary.
2. You qualify for the senior tax deduction
The new senior tax deduction is only in place through 2028, and it can reduce your taxable income by up to $6,000 for single adults or $12,000 for married couples. This could meaningfully reduce your tax bill over the next several years.
We don't know whether the government will extend the tax deduction beyond 2028, so if you qualify for it, take advantage of your reduced bill over the next few years to move some of your savings into Roth accounts. You may not even face a bill if your tax refund covers the cost of the conversion.
3. Your portfolio has taken a dip
When your investments are down, you'll pay less in taxes to do a Roth IRA conversion. Then, as your assets hopefully recover, all of that growth will be tax-free. This could help you hold onto more of your hard-earned savings in retirement.
If you're not sure whether a Roth IRA conversion is the right move for you this year, consider waiting until closer to December. This will give you time to get an idea of which tax bracket you'll fall into. Consult an accountant if you want a personalized estimate for how much a Roth IRA will cost you in 2026.
The $23,760 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.
View the "Social Security secrets" »
The Motley Fool has a disclosure policy.
Recommended Articles
