If you’ve been following recent tax discussions, you’ve likely heard that 2026 could mark a turning point. Several provisions from prior tax legislation are scheduled to sunset, potentially leading to higher marginal tax rates for many households.
In today’s blog, our team of Denver wealth advisors will weigh in on the impact of new tax provisions on Roth conversions.
Tyler’s Take: The 30-Year Tax Horizon
“Roth conversions aren’t about chasing a lower tax bill in one year; they’re about shaping how your income is taxed over the next 20 or 30 years.”
If you have $1 million or more in investable assets and you’re thinking seriously about retirement planning, this raises an important question: Do you want to control when taxes are paid, or let future rules and required distributions decide for you?
The answer isn’t as simple as “yes” or “no.” Like most financial planning decisions, it depends on how Roth conversions fit into your broader plan, especially when you factor in taxes, income timing, and the pursuit of long-term financial goals late in life.
What Is Changing With 2026 Tax Rates and Why Does It Matter for Roth Conversions?
If you have significant assets in pre-tax retirement accounts, such as IRAs or 401(k)s, the scheduled tax changes in 2026 can directly influence when and how you consider Roth conversions. Here are the 2026 federal tax brackets.
Single Filers (2026)
- 10%: $0 – $12,400
- 12%: $12,401 – $50,400
- 22%: $50,401 – $105,700
- 24%: $105,701 – $201,775
- 32%: $201,776 – $256,225
- 35%: $256,226 – $640,600
- 37%: $640,600+
Married Filing Jointly (2026)
- 10%: $0 – $24,800
- 12%: $24,801 – $100,800
- 22%: $100,801 – $211,400
- 24%: $211,401 – $403,550
- 32%: $403,551 – $512,450
- 35%: $512,451 – $768,700
- 37%: $768,700+
Important notes:
- The same tax rates (10%–37%) remain in place for 2026 under current law.
- Bracket thresholds have increased slightly due to inflation adjustments.
- The top rate is still 37%, not 39.6%, because recent legislation (OBBBA) kept much of the current structure intact.
How Do Higher Future Tax Rates Impact Roth Conversion Decisions?
A Roth conversion is, at its core, a timing decision. You’re choosing to recognize taxable income today in exchange for potential tax-free growth and distributions later. When future tax rates are expected to be higher, that trade-off becomes much more relevant.
Think of it like deciding when to pay a known expense. If you know a bill will be higher next year, consider paying it now at a lower rate, provided it fits within your broader financial plan.
For you, this could mean evaluating whether converting portions of your IRA today, while rates are lower, may reduce the impact of higher future taxes.
But the keyword here is portions. This isn’t about converting everything into a Roth at once. It’s about strategically managing how much income you recognize each year. This is where the services of a Denver wealth advisor can be particularly helpful.
Here are a few real-world scenarios to show how Roth conversions can affect income and taxes, both in the short term and over time.
Scenario 1: No Roth Conversion (Status Quo Approach)
Profile:
- Age 60, retired
- $2M in a traditional IRA
- Reduced income today
Short-Term Impact: You avoid paying additional taxes now. Your taxable income stays relatively low in the early retirement years.
Long-Term Impact: By age 73, your IRA may grow to $3M+ (depending on market returns)
- Required Minimum Distributions (RMDs) could exceed $110,000+ annually
- That income stacks on top of Social Security and other sources
- You may be pushed into higher tax brackets (32%+)
- Medicare premiums may increase due to higher income
Takeaway: In this scenario, taxes are delayed, but you risk losing control over how much income is taxed later.
Scenario 2: Large One-Time Roth Conversion
Profile:
- Same as above
- Converts $500,000 in one year
Short-Term Impact: Your taxable income spikes significantly.
- You may jump into the 35% or even the 37% tax bracket
- A large tax bill is due in that year
- Potential increase in Medicare premiums (IRMAA)
Long-Term Impact:
- Your IRA balance is reduced
- Future RMDs are lower
- A portion of your assets now grows tax-free
- Distributions from the Roth IRA are tax-free
Takeaway: You create future tax flexibility, but at a high upfront tax cost.
Scenario 3: Gradual “Bracket-Filling” Roth Conversions
Profile:
- Same starting point
- Converts ~$250K/year over multiple years
Short-Term Impact:
- Income increases, but stays within a target bracket (e.g., 24%)
- Taxes are paid gradually rather than all at once
- More control over how much income is recognized each year
Long-Term Impact:
- The IRA balance is steadily reduced
- Future RMDs are smaller
- More assets shift into tax-free Roth accounts
- Greater flexibility in managing retirement income
Takeaway: This approach spreads taxes over time, helping manage both current and future tax exposure.
Scenario 4: Roth Conversions During a Market Downturn
Profile:
- Portfolio temporarily declines (e.g., $2M → $1.6M)
- Converts $200K during the downturn
Short-Term Impact:
- You pay taxes on a lower asset value
- The same number of shares/assets is moved into the Roth
Long-Term Impact:
- If markets recover, growth happens inside the Roth (tax-free)
- Less value remains in the taxable IRA
Takeaway: Timing conversions during lower market values can improve long-term efficiency.
Scenario 5: No Conversions vs. Partial Conversions (Side-by-Side)
Without Conversions:
- Higher future RMDs
- Less flexibility in managing taxable income
- Greater exposure to future tax rate increases
With Partial Conversions:
- Lower RMDs later
- Ability to draw from tax-free Roth assets
- More control over tax brackets in retirement
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Why Are High-Net-Worth Individuals More Affected by These Changes?
If you’ve built substantial wealth, you’re more likely to feel the effects of rising tax rates for a few reasons:
1. Larger Pre-Tax Balances = Larger Future Tax Exposure
If a significant portion of your wealth is held in traditional IRAs or 401(k)s, those accounts will eventually be subject to Required Minimum Distributions (RMDs).
Those distributions are taxed as ordinary income. As account balances grow, so do the required withdrawals and the associated tax liability. Under higher tax rates, those future withdrawals could be taxed more heavily than they would be today.
2. Multiple Income Sources Can Push You Into Higher Brackets
As a high-net-worth individual, it’s highly likely that you have multiple income streams, such as:
- Investment income
- Business or consulting income
- Real estate income
- Deferred compensation
Adding RMDs on top of that can push total income into higher tax brackets. A Roth conversion strategy may help spread that tax burden over multiple years rather than concentrating it in a single year.
3. Medicare and Tax Thresholds Add Another Layer
Higher income doesn’t just affect federal taxes; it can also influence Medicare premiums and other thresholds. For example, larger RMDs in the future could trigger higher IRMAA surcharges, increasing healthcare costs in retirement.
By contrast, controlled Roth conversions earlier in retirement (or even pre-retirement) may allow you to manage income levels more deliberately.
How Should You Balance Roth Conversions With Other Planning Priorities?
Even with potential tax changes on the horizon, Roth conversions shouldn’t be looked at in isolation. For high-net-worth individuals in Denver focused on long-term wealth accumulation and preservation, this decision often touches multiple areas of your financial life, and how well those pieces work together can shape the outcome.
- Investment Strategy: How conversions impact allocation and liquidity
A Roth conversion requires you to pay taxes on the amount converted, which often means using cash or other assets outside your portfolio. That can influence how you allocate your investments and whether you need to raise liquidity.
For example, selling appreciated assets to cover taxes could trigger additional capital gains, while pulling too much from cash reserves may affect your ability to stay invested during market opportunities. The goal is to structure conversions in a way that supports your broader investment strategy, not disrupts it.
- Tax Planning: Coordinating across multiple moving parts
Roth conversions directly increase your taxable income in the year they occur, which means they need to be coordinated with everything else happening on your tax return. This might include capital gains, business income, deductions, or charitable giving.
For instance, pairing a conversion with a year where you have higher deductions or charitable contributions may offset some of the tax impact. Without that coordination, you may unintentionally push yourself into a higher bracket than you need to.
- Estate Planning: Thinking beyond your lifetime
For many high-net-worth families, Roth conversions are also part of a broader estate strategy. Traditional IRA assets passed to heirs are generally taxable, whereas Roth IRA assets may be subject to more favorable tax treatment depending on the timing of distributions. Converting portions of your IRA over time may change how wealth is transferred to the next generation.
The question becomes less about your current tax bill and more about how those assets are taxed across multiple lifetimes.
- Cash Flow Needs: Maintaining your lifestyle while paying taxes
One of the more practical considerations is how to pay the tax bill resulting from a conversion. Ideally, taxes are covered with funds outside the retirement account, allowing more of the converted amount to remain invested. But that requires careful planning. Converting too much in a given year could strain your cash flow or require you to sell assets at inopportune times. A well-structured approach keeps your lifestyle intact while still advancing your long-term tax planning.
For example, converting too much in a single year could create unnecessary tax drag, even if rates rise later. On the other hand, avoiding conversions altogether may leave you with larger pre-tax balances that generate higher taxable income in the future.
The balance often comes from modeling different scenarios, evaluating trade-offs, and adjusting your approach over time as both your situation and tax rules evolve.
Are Roth Conversions Still Worth It?
The better question might be: Do Roth conversions fit into your plan under today’s and future tax conditions? For some, the answer may be yes, particularly if future tax exposure is expected to increase. For others, the timing or structure may need to be adjusted.
What matters most is context.
Tyler’s Take: The Rule of Intentionality
“The most effective Roth conversion strategies are intentional and measured. It’s less about how much you convert today, and more about how each step fits into your overall financial plan.”
When it comes to the oversight of your wealth in Denver, CO, decisions like these are less about reacting to headlines and more about aligning strategies with your long-term financial picture.
Connect with us to discuss your retirement planning needs.
