If your income dropped in 2026 — a job transition, a career change, a leave of absence, a slow year for freelance work — there’s a specific tax move that’s worth evaluating before December 31. A Roth conversion lets you move money from a traditional IRA or 401(k) into a Roth IRA, paying taxes now at your current rate in exchange for tax-free growth and withdrawals later. The lower your income this year, the lower the tax rate on the conversion, and the more compelling the math becomes.
The logic is straightforward. Money in a traditional retirement account is pre-tax — you’ll pay income tax when you withdraw it in retirement. If your income today is lower than you expect it to be in retirement (or than it was in prior years), you have a window to convert some of that future tax liability into a current one at a cheaper rate. Every dollar you convert at 12% instead of 22% saves you 10 cents of tax for every dollar in retirement. On a $50,000 conversion, that’s $5,000 in lifetime tax savings.
The ideal Roth conversion candidate has a lower-than-usual income this year, a significant pre-tax balance in a traditional IRA or old 401(k), and time before retirement for the converted funds to grow tax-free. Career transitioners, people who took time off, early retirees before Social Security kicks in, and freelancers with a slow year are all strong candidates. The strategy also works for people who inherited a traditional IRA and are taking required minimum distributions — converting some of the balance can reduce future RMDs.
It’s less compelling for people whose income this year is the same or higher than expected — converting at your peak bracket doesn’t improve your tax position unless you have a strong view that rates will rise significantly in the future.
The key is to convert enough to fill your current tax bracket without pushing income into the next one. For a single filer in 2026, the 12% bracket tops out at $47,150. If your taxable income is $30,000 this year, you have roughly $17,000 of room to convert at 12% before hitting 22%. Converting $17,000 at 12% instead of 22% saves $1,700 in taxes on that tranche — and the converted amount grows tax-free from that point forward.
Run the numbers with your actual income, deductions, and available room in each bracket before converting. A single miscalculation can push you into a higher bracket on the portion that crosses the threshold. Tax software, a CPA, or a fee-only financial planner can help you size this precisely. The December 31 deadline is firm — there’s no extension for conversions the way there is for IRA contributions.
There’s a broader reason Roth conversions are getting attention right now. The Tax Cuts and Jobs Act of 2017 reduced individual income tax rates significantly, and those lower rates are set to expire after 2025 under the original law — reverting to pre-2018 levels unless Congress acts. If rates rise in coming years (and whether they do depends entirely on legislation), converting now at current rates locks in the lower tax treatment. That’s a speculative argument for the general strategy, but it’s a credible one worth incorporating into the decision.
Generally no — most employer plans don’t allow in-service rollovers to external accounts. You typically need to roll the 401(k) to a traditional IRA first (after leaving the employer), then convert from the traditional IRA to a Roth. Check your plan documents; some larger plans do allow in-plan Roth conversions where pre-tax 401(k) funds move to a Roth 401(k) within the same plan.
Yes — this is the most important planning consideration for people using ACA marketplace coverage. ACA subsidies phase out as income rises above 100% of the federal poverty level, and converted amounts count as income. A large conversion can reduce or eliminate your premium tax credit for that year. If you’re on ACA coverage, size your conversion carefully against your subsidy threshold, or time the conversion for a year when you have employer coverage.