Roth Conversion.
A definition, in plain English — with the books that teach it.
What it means
A Roth conversion is the process of moving money from a traditional IRA or pre-tax 401(k) into a Roth IRA, triggering ordinary income tax on the converted amount in the year of conversion. The strategic rationale is paying taxes now at a known rate in exchange for tax-free growth and withdrawals later. Conversions are most advantageous in years when the account holder's taxable income — and therefore marginal tax rate — is unusually low, such as after retirement and before Social Security or RMDs begin.
Example
A 62-year-old retiree has $400,000 in a traditional IRA and no Social Security income yet. Converting $50,000 each year for five years fills her 22% tax bracket and moves $250,000 into a Roth IRA. The tax bill each year is about $11,000, but future growth on those funds and all withdrawals are permanently tax-free.
