A Roth conversion can be an important retirement-planning strategy for people who have money in a Traditional IRA and want to move some or all of those funds into a Roth IRA. The decision is not always straightforward because converting pre-tax retirement savings can create a tax bill today in exchange for potential tax advantages in the future.
Bankrate Roth Conversion Calculator
What Is a Roth Conversion?
A Roth conversion is the process of moving money from an eligible Traditional IRA into a Roth IRA. Unlike a normal contribution to a Roth IRA, a conversion generally involves transferring existing retirement assets.
Traditional IRAs can provide tax benefits because contributions may be deductible depending on the taxpayer's circumstances, while investment growth generally isn't taxed annually. Roth IRAs work differently. Qualified Roth distributions can generally be withdrawn tax-free, subject to applicable rules.
The trade-off is particularly important when converting Traditional IRA funds. Amounts included in taxable income as a result of a conversion may create a tax liability in the year of conversion.
For this reason, someone considering a Roth conversion often wants to answer questions such as:
- How much tax might I owe today?
- How much of my IRA should I convert?
- How much could the converted funds grow before retirement?
- Would paying taxes now potentially save money later?
- What percentage of my Traditional IRA should I convert?
The Bankrate Roth Conversion Calculator provides estimates for these questions using the assumptions you enter.
How the Bankrate Roth Conversion Calculator Works
The calculator asks for seven primary inputs:
| Input | What It Represents |
|---|---|
| Traditional IRA Balance | Total balance currently held in the Traditional IRA |
| Amount to Convert | Portion of the IRA you plan to convert |
| Current Taxable Income | Your current taxable income used as a planning reference |
| Current Marginal Tax Rate | Estimated tax rate applied to the conversion today |
| Future Tax Rate | Estimated tax rate you expect in the future |
| Annual Investment Return | Expected annual growth rate of the converted funds |
| Years Until Retirement | Number of years the money is expected to grow |
After you enter these values, the calculator provides several estimates to help you understand the potential effect of a Roth conversion.
The results include:
- Estimated Conversion Tax
- IRA Balance Remaining
- Estimated Roth Value at Retirement
- Estimated Future Tax on Converted Amount
- Estimated Tax Savings at Retirement
- Conversion Amount as a Percentage of the IRA
- An overall estimated result
How to Use the Bankrate Roth Conversion Calculator
Using the calculator is straightforward. Start by gathering reasonable estimates for your IRA balance, current taxable income, and expected tax rates.
Step 1: Enter Your Traditional IRA Balance
Enter the total amount currently held in your Traditional IRA.
For example, assume your IRA contains $100,000.
This value is important because the calculator uses it to determine how large the conversion is relative to the entire account.
Step 2: Enter the Amount You Want to Convert
Next, enter the portion of your IRA that you expect to move into the Roth IRA.
For example, you might decide to convert $25,000 rather than converting the entire $100,000.
The calculator does not allow a conversion amount greater than the Traditional IRA balance.
Step 3: Enter Your Current Taxable Income
Enter your estimated current taxable income.
For example:
$70,000
This input can provide useful context when thinking about the conversion, although the calculator's core conversion-tax estimate is based on the marginal tax rate you enter.
Step 4: Enter Your Current Marginal Tax Rate
Enter the estimated marginal tax rate that you believe applies to the conversion.
For example:
22%
The calculator uses this percentage to estimate the tax associated with converting the specified amount.
Step 5: Enter Your Estimated Future Tax Rate
Enter the tax rate you believe may apply to the converted funds in the future.
For example:
20%
This allows the calculator to compare the estimated tax cost today with a simplified model of potential tax exposure later.
Step 6: Enter Your Expected Investment Return
Enter the annual return you expect the converted money to earn.
For example:
7%
This assumption is important because investment growth can significantly affect the value of a Roth conversion over a long retirement horizon.
Step 7: Enter Your Years Until Retirement
Finally, enter how many years you have until retirement.
For example:
20 years
The calculator uses this period to compound the converted funds and estimate their future value.
Roth Conversion Formula Explained
The Bankrate Roth Conversion Calculator uses several straightforward formulas to estimate the results.
Estimated Conversion Tax
The estimated conversion tax is calculated as:
Conversion Tax = Conversion Amount × Current Marginal Tax Rate
For example, suppose you convert $25,000 and estimate your current marginal tax rate at 22%.
$25,000 × 22% = $5,500
The calculator would therefore estimate a current conversion tax of approximately $5,500.
This is a simplified estimate. Your actual tax liability can differ because your tax situation may involve multiple tax brackets, deductions, credits, other income, and potentially state or local taxes.
IRA Balance Remaining
The amount remaining in the Traditional IRA is:
Remaining IRA = Traditional IRA Balance − Conversion Amount
For example:
$100,000 − $25,000 = $75,000
After the hypothetical conversion, approximately $75,000 would remain in the Traditional IRA.
Future Value of the Converted Roth Amount
The calculator uses annual compound growth to estimate the future value of the converted funds:
Future Roth Value = Conversion Amount × (1 + Growth Rate)ᵞears
In a practical example, assume:
- Conversion amount = $25,000
- Annual return = 7%
- Time = 20 years
The estimated future value would be:
$25,000 × (1.07)²⁰ ≈ $96,742
This demonstrates why the number of years before retirement is so important. Even a relatively modest annual return can produce substantial growth over several decades.
Estimated Future Tax on the Converted Amount
The calculator then estimates a hypothetical future tax amount:
Future Tax = Future Roth Value × Future Tax Rate
Using a projected future value of approximately $96,742 and an assumed future tax rate of 20%:
$96,742 × 20% ≈ $19,348
This amount is a modeled comparison figure rather than a prediction of an actual future Roth tax bill.
Estimated Tax Savings
The calculator estimates tax savings by comparing the modeled future tax with the estimated tax paid on conversion:
Estimated Tax Savings = Estimated Future Tax − Estimated Conversion Tax
Using the example:
$19,348 − $5,500 = $13,848
The calculator would show an estimated tax-saving figure of approximately $13,848 under these assumptions.
This result should be interpreted carefully because real-world retirement taxation is more complicated than the simplified calculation.
Worked Example
Let's walk through a complete example.
Assume the following:
| Factor | Example Value |
|---|---|
| Traditional IRA Balance | $100,000 |
| Conversion Amount | $25,000 |
| Current Taxable Income | $70,000 |
| Current Marginal Tax Rate | 22% |
| Future Tax Rate | 20% |
| Expected Annual Return | 7% |
| Years Until Retirement | 20 |
Step 1: Estimate Conversion Tax
$25,000 × 22% = $5,500
Estimated conversion tax:
$5,500
Step 2: Calculate Remaining IRA Balance
$100,000 − $25,000 = $75,000
Remaining Traditional IRA balance:
$75,000
Step 3: Project the Roth Value
Using 7% annual compound growth for 20 years:
$25,000 × (1.07)²⁰ ≈ $96,742
Estimated Roth value at retirement:
$96,742
Step 4: Estimate Future Tax
At an assumed future tax rate of 20%:
$96,742 × 20% ≈ $19,348
Estimated modeled future tax:
$19,348
Step 5: Estimate Tax Savings
$19,348 − $5,500 = $13,848
Estimated tax savings:
$13,848
Step 6: Calculate Conversion Percentage
The conversion represents:
($25,000 ÷ $100,000) × 100 = 25%
So, approximately 25% of the original IRA balance is being converted.
This example illustrates how paying an estimated amount of tax today could potentially produce a different tax outcome in retirement, particularly when the converted funds have many years to compound.
Why the Amount You Convert Matters
One of the most important Roth conversion decisions is determining how much to convert.
Converting a large portion of a Traditional IRA could increase your current taxable income and potentially result in a larger tax bill. A smaller conversion may create a more manageable immediate tax cost.
Some people consider partial conversions rather than converting their entire account at once.
For example:
| IRA Balance | Conversion | Conversion Percentage |
|---|---|---|
| $100,000 | $10,000 | 10% |
| $100,000 | $25,000 | 25% |
| $100,000 | $50,000 | 50% |
| $100,000 | $75,000 | 75% |
| $100,000 | $100,000 | 100% |
A gradual approach may be worth evaluating when someone wants to spread conversions across multiple years, although whether that strategy is appropriate depends on individual tax circumstances.
Current Tax Rate vs. Future Tax Rate
One of the most important concepts in Roth conversion planning is the comparison between the tax rate you pay now and the rate you might face later.
A conversion can become more attractive when the current tax cost is relatively low compared with the potential future tax cost.
For example, imagine two scenarios:
| Scenario | Current Tax Rate | Future Tax Rate |
|---|---|---|
| A | 22% | 12% |
| B | 22% | 24% |
| C | 22% | 32% |
In Scenario A, paying tax today at a higher rate than the assumed future rate may make the conversion less attractive under the calculator's simplified assumptions.
In Scenario B, the current and future rates are relatively close.
In Scenario C, the future rate is significantly higher than the current rate, which can make the potential benefit of paying taxes today appear more favorable.
However, tax rates are not the only consideration. Your actual income, filing situation, deductions, credits, retirement income sources, and tax laws can all affect the outcome.
The Role of Compound Growth
Compound growth is one of the biggest reasons investors consider Roth conversions as a long-term strategy.
When money remains invested for many years, the investment returns can themselves generate additional returns.
For example, consider a $20,000 converted amount growing at 7% annually:
| Years | Approximate Value |
|---|---|
| 0 | $20,000 |
| 5 | $28,052 |
| 10 | $39,343 |
| 15 | $55,181 |
| 20 | $77,394 |
| 25 | $108,545 |
| 30 | $152,245 |
These figures demonstrate the mathematical impact of compounding. Actual investment performance will vary, and returns are never guaranteed.
The longer the investment period, the more important your assumed annual return becomes.
Understanding the Estimated Tax Savings Result
The calculator's Estimated Tax Savings at Retirement result requires special attention.
A positive number means the modeled future tax on the converted amount is greater than the estimated tax paid at conversion.
A negative number means the estimated current conversion tax is greater than the calculator's modeled future tax.
A result close to zero means the two estimated tax amounts are approximately equal.
This number is best interpreted as a scenario comparison, not a guaranteed amount of money you will save.
For example, investment returns could be substantially higher or lower than expected. Your retirement income may differ from today's estimate, tax laws may change, and your future tax rate could be different from the number entered into the calculator.
Factors That Can Affect a Real Roth Conversion
The calculator intentionally simplifies the analysis, so it is important to understand the factors it does not fully model.
Tax Brackets
Your Roth conversion may not be taxed entirely at one rate in real life. The conversion can interact with your taxable income and potentially move some income into a higher tax bracket.
Deductions and Credits
Deductions and tax credits can affect your actual federal tax liability. A simple marginal-rate calculation cannot capture every element of an individual tax return.
State Taxes
State income taxes can also affect the total cost of a Roth conversion. Rules vary considerably between states.
Other Sources of Income
Salary, business income, investment income, pensions, Social Security benefits, and other sources of taxable income may influence your overall tax situation.
Investment Performance
The calculator assumes a constant annual investment return. Real investments do not normally grow at a perfectly consistent rate each year.
Retirement Timing
The number of years until retirement can materially change the projection. A conversion made decades before retirement has more time to compound than one made shortly before retirement.
Future Tax Law
Tax laws can change over time. A projection using today's assumptions cannot guarantee what tax rules will apply years or decades in the future.
Benefits of Using a Roth Conversion Calculator
A Roth conversion calculator can be useful because it allows you to test different scenarios quickly.
For example, you can compare what happens when you change:
- The amount converted
- Your current tax rate
- Your expected future tax rate
- Your projected investment return
- The number of years until retirement
This makes it easier to understand how sensitive your strategy may be to different assumptions.
Instead of looking at only one possible conversion, you can model several amounts and compare their potential results.
When a Roth Conversion May Be Worth Considering
There is no single situation in which a Roth conversion is always the right choice. However, people often consider Roth conversions when they believe paying taxes on Traditional IRA funds now could provide meaningful long-term benefits.
Potential reasons to investigate a conversion include having a relatively low current taxable-income year, expecting a higher tax rate in retirement, having a long investment horizon, or wanting greater flexibility around taxable retirement income.
A conversion may also be less attractive when the current tax cost is unusually high, there is limited time for the converted money to grow, or the person's future tax rate is expected to be significantly lower.
The important point is that a Roth conversion should be evaluated in the context of an overall retirement strategy rather than based on a single calculator result.
Roth Conversion vs. Traditional IRA: Basic Comparison
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contributions | May be tax-deductible depending on circumstances | Generally made with after-tax money |
| Investment Growth | Generally tax-deferred | Generally tax-free when qualified |
| Tax on Conversion | May apply when converted | Conversion moves funds into Roth |
| Qualified Withdrawals | Generally taxable | Generally tax-free |
| Retirement Planning | Can defer taxes | Can provide tax-free qualified distributions |
The exact tax treatment depends on the applicable rules and your individual circumstances.
Tips for Getting Better Results From the Calculator
The quality of a calculator's projection depends heavily on the assumptions entered.
Use a realistic IRA balance rather than an aspirational number. Choose a conversion amount that you are actually considering. For investment growth, avoid assuming exceptionally high returns simply to make the conversion look more attractive.
It is also helpful to test multiple future tax-rate assumptions.
For example, you could compare 12%, 20%, 24%, and 30% scenarios rather than relying on a single guess. Doing so can show how sensitive the potential outcome is to future tax rates.
Likewise, compare shorter and longer investment periods. A conversion that looks marginal over five years can look very different over 20 or 30 years due to compounding.
Important Limitations of This Roth Conversion Calculator
This calculator is intentionally designed as a simplified planning tool.
It estimates the current tax using the conversion amount multiplied by the current marginal tax rate entered by the user. It then projects the converted funds using compound annual growth and applies the entered future tax rate to that projected value.
Actual taxation may differ substantially.
The calculator does not fully model every tax bracket, deduction, credit, state tax, other sources of income, or individualized retirement-planning factor. It also does not predict investment performance or future tax legislation.
For that reason, calculator results should be treated as estimates for educational and planning purposes.
Frequently Asked Questions About Roth Conversions
1. What is a Roth conversion?
A Roth conversion involves moving eligible funds from a Traditional IRA into a Roth IRA. Depending on the circumstances, the converted amount may be included in taxable income for the year of conversion.
2. How does the Bankrate Roth Conversion Calculator estimate conversion tax?
The calculator multiplies the amount being converted by the estimated current marginal tax rate entered by the user.
3. Can I convert my entire Traditional IRA?
The calculator allows a conversion up to the amount of the Traditional IRA balance entered. Whether converting the entire account is appropriate is a separate financial-planning decision.
4. Why does the calculator ask for current taxable income?
Current taxable income provides useful context for Roth conversion planning and helps users evaluate their current tax situation. The calculator's direct tax estimate, however, is based on the marginal tax rate provided.
5. What does the future Roth value mean?
The estimated future Roth value represents the projected value of the converted amount after compounding at the annual investment return you enter for the specified number of years.
6. What investment return should I enter?
Use a reasonable long-term assumption based on your investment strategy and risk tolerance. No investment return is guaranteed, so consider testing several different return assumptions.
7. What does estimated future tax on the converted amount mean?
It is a modeled figure calculated by applying your estimated future tax rate to the projected future value of the converted amount. It is not necessarily the actual tax that would be owed on a Roth withdrawal.
8. What does estimated tax savings at retirement mean?
The calculator compares its modeled future tax amount with the estimated tax paid today to produce a tax-savings estimate. A positive result suggests the modeled future tax exceeds the current conversion tax.
9. Why are the calculator's results only estimates?
Real tax situations are affected by many variables, including tax brackets, deductions, credits, other income, state taxes, investment performance, future tax laws, and individual circumstances.
10. Is a Roth conversion always beneficial?
No. A Roth conversion can be beneficial in some situations and less attractive in others. The answer depends on current and expected future tax circumstances, investment horizon, and broader retirement goals.
11. Should I convert all my IRA money at once?
Not necessarily. Some investors evaluate partial or multi-year conversions to manage the potential tax impact. The appropriate strategy depends on the individual's circumstances.
12. Does investment growth affect Roth conversion planning?
Yes. Longer periods of compound investment growth can significantly increase the potential future value of converted funds, which can affect the long-term comparison between current and future taxes.
13. What happens if my future tax rate is lower than my current tax rate?
Under the calculator's simplified assumptions, a lower future tax rate can reduce the modeled future tax and may make the conversion appear less attractive compared with paying a lower tax rate later.
14. Can tax laws change after I make a Roth conversion?
Yes. Future tax laws can change, which is one reason long-term projections should be treated as estimates rather than guarantees.
15. Should I consult a tax professional before converting an IRA?
For a significant Roth conversion, professional advice can be valuable. A qualified tax or financial professional can evaluate the conversion in the context of your complete tax return, retirement income, investment strategy, and financial goals.
Final Thoughts
The Bankrate Roth Conversion Calculator can be a useful starting point for understanding the potential financial effects of moving money from a Traditional IRA to a Roth IRA. By comparing the estimated tax paid today with a modeled future tax amount, the calculator helps illustrate how tax rates, investment growth, conversion size, and time can influence a Roth conversion strategy.
One of the most important lessons is that there is no universally correct conversion amount. A strategy that makes sense for one investor may not make sense for another. The optimal decision can depend on current taxable income, future retirement income, expected tax rates, investment returns, retirement timing, and many other variables.
Use the calculator to test multiple scenarios rather than relying on a single result. Try different conversion amounts, investment-return assumptions, future tax rates, and retirement timelines to see how the estimated outcome changes.
Most importantly, remember that the calculator is an educational estimate. A Roth conversion can have significant tax and financial-planning consequences, so major conversion decisions should be evaluated carefully and, when appropriate, discussed with a qualified tax or financial professional.