A Roth IRA conversion can be one of the most powerful tax-planning moves in a retirement plan.  

By transferring assets from a traditional IRA or other tax-deferred retirement account into a Roth account, you pay income tax now in exchange for future tax-free growth and tax-free withdrawals.  

Done strategically, a Roth IRA conversion can help reduce the burden of required minimum distributions (RMDs) later in life, provide more flexibility in managing retirement income, and even create opportunities for estate planning that benefit your heirs. 

But as valuable as this tool can be, a poorly executed conversion can backfire. Missteps can push you into a higher tax bracket, leave you with a huge tax bill, or slam the brakes on your long-term tax savings.  

In addition, the IRS rules around IRAs, conversions, and tax implications are complicated, making it easy to overlook important details. 

To maximize the benefits and avoid unnecessary costs, it’s important to understand the pitfalls. Below are five of the most common—and costly—mistakes people make when pursuing a Roth conversion. 

Mistake 1: Being Unintentional About the Conversion 

One of the biggest errors investors make is approaching a Roth IRA conversion without a clear strategy. Many assume that any conversion will automatically save them money on taxes. The truth is more nuanced. 

The converted amount counts as ordinary income, so if you convert too much in a single tax year, you could find yourself in a higher tax bracket, increasing not only your federal income tax but also your state tax liability, Medicare premiums, and even the taxation of Social Security benefits. 

On the other hand, if you convert too little each year, you may not meaningfully reduce your future RMDs. This can leave you with higher IRA distributions in retirement, forcing larger taxable withdrawals at a time when you may prefer greater flexibility. 

The goal is to find the sweet spot: 

• Calculate how much room you have left in your current tax bracket. 

• Convert only up to that amount, avoiding an unintended jump into a higher bracket. 
• Spread conversions over multiple years, especially in years where your income may be lower (such as early retirement or a gap year before starting Social Security). 

This type of tax planning ensures you’re converting efficiently, managing taxable income year by year, and positioning yourself for meaningful tax savings over the long term. 

Mistake 2: Paying the Conversion Taxes with IRA Funds 

It can be tempting to use retirement dollars to pay the conversion tax, but doing so undermines the entire strategy. 

Consider this scenario: You convert $100,000 from a traditional IRA to a Roth. Depending on your tax rate, you may owe $24,000 or more in taxes.  

If you take that tax payment from the converted funds, you’re left with just $76,000 in your Roth account. That’s $24,000 less earning tax-free growth for the rest of your life. 

Worse, if you’re under age 59½ and use IRA assets to pay the tax, the amount withdrawn for taxes may be considered an early withdrawal, potentially triggering a 10% IRS penalty.

A better approach is to pay the taxes from outside the IRA: 

• Use a savings account, taxable brokerage account, or cash flow. 

• Preserve as much as possible of the converted amount inside the Roth. 
• Maximize the benefit of tax-free compounding over decades. 

This way, your Roth balance grows larger, your tax-free withdrawals in retirement are higher, and you fully leverage the purpose of the conversion. 

Mistake 3: Converting an IRA Right After a 401(k) Rollover 

Many individuals in their 50s and 60s (prime candidates for Roth conversions) are also transitioning out of their careers and rolling over 401(k) balances into traditional IRAs. While a rollover itself is not taxable, it does affect the tax equation for subsequent conversions. 

Why? Because 401(k) balances often include decades of pre-tax contributions and tax-deferred growth. When these assets move into an IRA, they blend with any after-tax money or traditional IRA contributions you already hold.  

The IRS then applies a “pro-rata rule,” which requires you to treat every dollar in your IRA as part pre-tax and part after-tax when converting. 

If you convert shortly after a large rollover, you may find yourself with a significantly higher taxable income than expected, leading to a steeper conversion tax bill. 

Before converting: 

• Evaluate the timing of your 401(k) rollover. 

• Understand the pro-rata rule and how it affects your eligibility and tax exposure. 
• Work with a tax advisor or financial advisor to model scenarios before acting. 

Getting this sequence wrong can mean paying far more in taxes than necessary. 

Mistake 4: Holding the Wrong Assets in Your Roth Account 

Asset allocation is important in any retirement plan, but in the case of Roth accounts, asset location can make or break your results. 

The advantage of a Roth is its tax-free growth potential. That means it’s generally most efficient to hold investments with higher expected returns—such as equities—in your Roth.  

Assets with lower expected returns, like bonds or cash equivalents, are often better suited for traditional IRAs, where the tax-deferred benefit is less powerful. 

To put it simply: 

• Stocks in Roth IRA → Growth compounds tax-free, maximizing the benefit. 
• Bonds in Traditional IRA → Income is taxed as ordinary income anyway upon withdrawal, minimizing lost opportunity. 

After completing a conversion, don’t overlook the importance of rebalancing. Review your retirement accounts holistically to ensure each type of asset is placed where it delivers the most advantage. This kind of tax-efficient investing is a subtle but critical step in maximizing your tax savings. 

Mistake 5: Not Knowing Your Options 

While a Roth conversion is one of the most common and effective strategies high earners use to optimize their retirement savings, it isn’t the only one. Overlooking alternatives may mean missing opportunities for even greater tax-free growth. 

Another option is the Mega Backdoor Roth conversion. Here’s how it compares: 

Roth IRA Conversion 

• Moves pre-tax assets from a traditional IRA or 401(k) into a Roth account. 

• Generates an immediate tax bill since the converted amount is treated as ordinary income. 
• Best used strategically over several years to manage taxable income and avoid jumping into a higher tax bracket. 

Mega Backdoor Roth 

• Uses after-tax contributions to a 401(k) (beyond the standard deferral limits) and then rolls those funds into a Roth IRA or Roth 401(k). 

• Allows high earners to contribute significantly more than the standard Roth IRA contribution limits permit. 
• Can dramatically increase the amount of money compounding in a Roth on a tax-free basis without triggering the same upfront tax hit as a traditional Roth conversion. 

Both strategies can play an important role in a retirement plan, but they serve different purposes. Traditional conversions are often about managing required minimum distributions (RMDs) and smoothing out lifetime tax liability, while the Mega Backdoor Roth is about maximizing contributions and long-term tax savings for those who qualify. 

Mistake 6: Going It Alone 

Perhaps the most costly mistake of all is attempting a Roth IRA conversion without guidance. The rules are complex, the tax implications are far-reaching, and each decision can affect other parts of your retirement plan. 

A qualified financial advisor or tax professional can help you: 

• Coordinate conversions with other strategies, like charitable giving through a donor-advised fund. 

• Evaluate the best time to claim Social Security to complement your conversion strategy. 

• Model different conversion amounts to understand their impact on your tax return, filing status, and long-term retirement savings. 
• Integrate estate planning considerations, such as leaving Roth assets to beneficiaries, who can enjoy tax-free withdrawals under current IRS rules. 

Attempting to manage a conversion in isolation can result in missing opportunities for broader tax planning. Professional guidance ensures that a Roth conversion fits seamlessly into your overall financial picture. 

Ready to Maximize Your Roth Conversion Strategy? 

A Roth IRA conversion can be a smart move, but the difference between a costly mistake and a powerful tax-saving opportunity often comes down to planning.  

The right approach requires careful attention to tax brackets, timing, investment allocation, and how conversions fit into your broader retirement and estate plan. 

At Plancorp, our team of fiduciary advisors helps clients navigate complex decisions like Roth conversions every day. We’ll work with you to create a personalized strategy that maximizes your retirement savings, minimizes unnecessary taxes, and gives you greater flexibility in the years ahead. 

If you’re considering a Roth IRA conversion, let’s talk. Schedule a private strategy session today to start building a more tax-efficient retirement plan.