Why Now May Be a Good Time to Consider a Roth IRA Conversion

Note: Due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, required minimum distributions (RMDs) for IRAs are waived for 2020. Learn about the RMD waiver >


The COVID-19 pandemic and the 2020 election has created a lot of uncertainty for investors.  Could your income drop due to illness, furlough, or job loss? And depending on who wins in November, could income tax rates rise in the future?

Generally we counsel investors not to react to “what-ifs,” but for many it can be difficult to do nothing. Focusing on issues you can control can help keep nerves in check. For that reason, we’re pointing out a unique opportunity to pay taxes on retirement savings now rather than later, by converting all, or a portion, of an individual retirement account (IRA) to a Roth IRA before the end of this year.

What is a Roth IRA?

A Roth IRA is funded with after-tax dollars, and qualified withdrawals are tax-free.1 This means you can pay the taxes now, instead of when you withdraw the money in retirement.

However, you can’t contribute to a Roth IRA if your modified adjusted gross income (MAGI) equals or exceeds certain limits ($139,000 for single filers and $206,000 for married couples filing jointly in 2020). Or you may have already contributed money into a traditional IRA. But there’s a workaround: A Roth IRA conversion allows you, regardless of income level, to convert all or part of your existing traditional IRA funds to a Roth IRA.

For a Roth conversion to make sense, you should consider several factors, such as: Do you think your marginal tax rate will likely be lower in 2020 than when you will need the money in retirement? (Your marginal tax rate is the tax rate paid on every additional dollar of taxable income, sometimes known as your tax bracket.) Will you need the money within five years? Can you pay the taxes with other taxable account assets, such as money held in a brokerage account, instead of taking the money from the Roth IRA? Do you have any estate gifting intentions for these assets? To learn more, check out “Why Consider a Roth IRA Conversion and How to Do It.”

A Roth conversion isn’t right for everyone, but there are several scenarios in which it might be to your advantage.

What are the potential benefits of a Roth conversion?  

  • It can give you increased flexibility and tax diversification. Tax-free qualified distributions can allow for greater tax planning and retirement planning options.
  • Roth IRAs don’t have required minimum distributions (RMD) beginning at age 72. Any converted amounts will not be calculated for future RMDs, possibly lowering taxable income in the future.
  • It can give you increased flexibility for legacy and estate planning. Higher-income beneficiaries may not have to worry about distributions influencing their income taxes.
  • You can pay taxes now at historically low levels. We don't know if taxes will go up or go down in the future. But taxes are at historical lows compared to rates over the past few decades. Investors could take advantage of these rates now, rather than wait until the current tax rates sunset in 2025.


What are the potential risks?

  • You would have to pay taxes now. People who decided to convert would need to weigh the opportunity cost of using funds now to pay taxes (ideally from a brokerage account, not your Roth account) versus paying taxes later on.
  • Taxes could be lower in the future. Although a recent Congressional Budget Office projectionforecast gradual increases to the marginal income tax rates over the next decade, there is a possible risk (however improbable) of lower tax rates in the future.
  • You can’t undo a conversion. Investors can no longer reverse a Roth conversion after the transaction is complete, due to the Tax Cuts and Jobs Act (TCJA) of 2017.
  • You don’t have a long enough investing time horizon. Roth conversions need time for the earnings to grow to make up for the taxes paid—for instance, 10 years or more. If you’re likely to need the money sooner, a Roth conversion may not make sense.


Who should consider a Roth conversion now?

  • People who will have lower earned income in 2020 due to COVID-19 or other issues. However, it’s not a good idea for people who have a pressing need for cash to pay day-to-day expenses—only for those with enough excess cash to pay the necessary taxes should consider taking advantage of a conversion.
  • People who have net operating losses from a business. Self-employed individuals or business owners that have lower taxable income due to claiming business losses could consider a Roth conversion.
  • People in their 60s who havelower earned income but are not yet taking IRA withdrawals. This is a big one, and probably the most common case. Those who do not need IRA withdrawals to support their current income and expect to report low taxable income for 2020 could benefit from a Roth conversion.
  • People who are in their 70s, but are not taking a RMD in 2020, as permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.The 2020 RMD waiver gives people an opportunity to convert some traditional IRA assets to a Roth. This is the new opportunity presented to investors who would have otherwise been subject to a RMD in 2020, but have decided not to take one this year due to the CARES act.


What investors can do

If you’d like to explore a Roth conversion, you can use Schwab’s Roth IRA Conversion Calculator to compare the estimated future values of keeping your traditional IRA versus converting it to a Roth.The calculator provides a general projection of an estimated future value of converting an IRA to a Roth and an estimate of taxes owed.

You may also want to consider a partial conversion, near year-end, to “harvest” a specific tax bracket. The three steps below can help you get a rough estimate for a partial conversion. Note that the projections are for guidance—they’re not personalized tax advice or a recommendation.

Better yet, talk with your tax preparer or a tax professional, before year-end—not after. A good tax professional, generally, can help with tax strategies, not just tax preparation. This includes a Roth Conversion, including calculations on whether it may make sense for you.

If you'd like to get a head start, consider the self-guided steps below.

Step 1: Roughly calculate your taxable income for 2020, sometime near year-end

This should be your first step in determining your 2020 taxable income and anticipated marginal tax bracket.

Taxable income

Where might you get this information?

Amount (Enter an amount here)

Wages, salaries, tips, etc.

Estimate based on pay stubs


Taxable interest and dividends

Estimate based on prior return


Taxable pension and IRA distributions

Did you take a RMD?


Taxable Social Security benefits

Up to 85% of Social Security benefits could be taxable


Net business income (or loss)

Do you own a business?


Net capital gains (or loss)

Did you realize losses? Up to $3,000 could be deductible


Other taxable income, such as alimony or other income

Is this lower than in 2019?


Total taxable income

Add up the amounts above





Itemized deduction or …

Use the higher of this or the standard deduction


Standard deduction

$12,400 single, $24,800 married filing jointly; higher if over age 65


Taxable income

Income minus deductions


Source: Schwab Center for Financial Research (SCFR). For information only.


Step 2: Roughly estimate additional dollars in taxable income before the next tax bracket

Use the taxable income from above to calculate, roughly, your marginal tax bracket. That is, what will your total taxable income be and what's your tax bracket?

Tax Bracket

Single (2020)

Married Filing Jointly (2020)


$0 to $9,875

$0 to $19,750


$9,701 to $40,125

$19,751 to $80,250


$40,126 to $85,525

$80,251 to $171,050


$85,526 to $163,300

$171,051 to $326,600


$163,301 to $207,350

$326,601 to $417,700


$207,351 to $518,400

$417,701 to $622,050


$518,401 or more

$622,051 or more

Source: IRS, 2020 tax brackets


Step 3: Consider a Roth conversion for an amount up to the next tax bracket

A partial Roth conversion up to a specific tax bracket offers a couple of benefits versus a full conversion. By targeting a specific tax bracket, you limit your overall taxes on your current-year tax return and lock in that tax rate for the converted amounts. For example, if you convert an IRA to a Roth but don’t go over the 12% tax bracket, you know that in the future if your tax rate is over 12% that conversion resulted in an overall tax savings. In addition, by targeting a specific tax bracket you can potentially reduce the amount of time it takes to recoup the taxes you paid on the conversion.

For example, if you're married and filing jointly and anticipate $60,000 in taxable income in 2020, you would be in the 12% marginal income tax bracket. You could convert $20,250$80,250 minus $60,000and pay taxes at the 12% tax rate on that amount before moving into the next, higher, 22% tax bracket. If you feel that your marginal income tax bracket could be higher in the future, due to higher taxable income, from traditional IRA distributions or any other sources, the Roth conversion could make sense, this year, if your taxable income is lower than it has been, say, in 2019, for any reason.

As with any decision that involves taxes, you should consult with a tax professional before attempting Roth conversion, especially since a conversion can no longer be undone.



1 Qualified distributions are those that occur at least five years after the account is established. At least one of the following conditions must also be met: The account holder is 59½ or older at the time of withdrawal; the account holder is permanently disabled; distributed assets (up to $10,000) are used toward the purchase or rebuilding of a first home for the account holder or a qualified family member; or withdrawals are made by the account beneficiary after the account holder’s death.

Next Steps

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Investing involves risk including loss of principal.

Roth IRA conversions require a 5-year holding period before earnings can be withdrawn tax free and subsequent conversions will require their own 5-year holding period. In addition, earnings distributions prior to age 59 1/2 are subject to an early withdrawal penalty.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager.

The policy analysis provided by Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.