Are Roth conversions only worth it in the 10% or 12% tax bracket? Not always. In this episode of Wise Money, we explain when Roth conversions in the 22% or 24% tax bracket can make sense and when they don’t. We cover estate planning considerations, market downturn opportunities, retirement tax “windows”, and whether a seven-figure portfolio can still stay in a lower tax bracket.
Season 11, Episode 17
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This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk, including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results.
Should You Do a Roth Conversion at 24% to Help Your Kids Pay Less Tax?
Roth conversions often get talked about as a “no-brainer” when you’re in the 10% or 12% tax bracket. But what about when you’re in the 22% or even 24% bracket? That’s where things get more nuanced, and in some cases, more powerful.
One of the most overlooked reasons to consider a Roth conversion at a higher tax rate has nothing to do with your own retirement. It has everything to do with your kids.
The 10-Year Rule Changed Everything
Under current tax law, when your children inherit a traditional IRA, they generally must withdraw all the money within 10 years. That sounds manageable until you think about when that happens.
For most families, that inheritance hits during your children’s peak earning years. They’re working, earning strong incomes, and already in higher tax brackets. Now layer on inherited IRA withdrawals, and suddenly they could be pushed into even higher brackets.
That means money you worked decades to build could be taxed at 32% or more when your kids receive it.
Paying 24% Now to Avoid 32% Later
This is where a strategic Roth conversion can shine.
If you convert some of your traditional IRA to a Roth while you’re in the 22% or 24% bracket, you’re essentially prepaying the tax. Once the money is in the Roth, all future growth is tax-free, and your heirs can withdraw it without adding taxable income to their return.
The math doesn’t need to be perfect. The principle is simple:
- Pay tax now at a known rate
- Avoid a potentially higher rate later for your kids
That’s tax arbitrage across generations.
It’s Not Just About the Rate
Even if your tax rate and your child’s tax rate end up being similar, there’s still an advantage.
Once you convert to a Roth:
- The future growth is tax-free
- The “IOU to the IRS” is eliminated
- Your heirs have more flexibility when withdrawing funds
That last point matters more than most people realize. If your kids inherit a large traditional IRA, they don’t have much control. Withdrawals are taxable, and timing is limited by the 10-year rule.
With a Roth, they gain flexibility. They can spread withdrawals, manage income, and avoid triggering higher tax brackets.
A Real Planning Shift
This kind of planning requires a shift in mindset.
Instead of asking:
“What’s the lowest tax I can pay this year?”
You start asking:
“Who should pay the tax on this money, and when?”
That’s a completely different lens. It stretches your planning beyond your lifetime and into the next generation.
When This Strategy Makes the Most Sense
A Roth conversion at higher tax brackets may be worth considering if:
- You expect to leave behind retirement assets
- Your children are likely to be high earners
- You don’t need all your retirement money to live on
- You want to create tax-free income for the next generation
It’s not automatic. It’s not one-size-fits-all. But it’s one of the most powerful levers available when used intentionally.
The Bottom Line
Roth conversions aren’t just about minimizing taxes today. They’re about controlling taxes over time and across generations.
In the right situation, paying 24% today could be one of the smartest long-term financial decisions you make, not for you, but for the people you care about most.
