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finance-business · personal-finance · retirement-tax-decisions

Roth Conversion Tax Impact Calculator

Compares converting a traditional balance to a Roth against leaving it alone, paying the conversion tax now and taxing the untouched balance when you eventually draw it. It reports which comes out ahead, the outside cash the conversion needs, and the future tax rate at which the two are equal. It models one conversion in isolation, not the bracket, surcharge and credit effects of adding the converted amount to a year's income.

Last updated
Decision Canvas

Calculator overview

Inputs and outputs

This summary comes from the calculator's published input and output contract.

Inputs

Amount To Convert (required)
About this input

The pre-tax retirement balance you are thinking of moving into a Roth. The whole amount is taxable income in the year you convert.

Unit currency Default 100000 Range At least 0
Expected Return (required)
About this input

The average annual return you expect, expressed as a percentage. Both routes are grown at the same rate, so it cannot change which wins when the tax comes from the balance.

Unit fraction Default 0.06 Range 0 to 0.25
State Tax On Conversion
When omitted Blank
About this input

Optional. An additional flat state or local rate on the conversion, added to the federal rate. Leave it blank if there is none or if you have folded it into the rate above.

Unit fraction Default Not set Range 0 to 0.15
Tax Paid From (required)
About this input

Where the conversion tax comes from. Outside money means the whole converted amount keeps compounding, which is what usually makes a conversion worthwhile. The converted balance means the tax is withheld from the conversion itself, and then equal tax rates make the two routes identical.

Default Outside money Allowed Outside money, The converted balance
Tax Rate In Retirement (required)
About this input

The rate you expect to pay when you eventually draw the money you did not convert. It is the most uncertain input here, which is why the break-even rate is reported beside the answer.

Unit fraction Default 0.22 Range 0 to 0.6
Tax Rate On Conversion (required)
About this input

The marginal rate you would pay on that income this year. If the conversion is large enough to cross a band, use a blended rate: this calculator applies one flat rate and cannot see the band change.

Unit fraction Default 0.24 Range 0 to 0.6
Years Until Withdrawal (required)
About this input

How long the money would grow before you draw it. The longer it is, the more a conversion funded from outside money is worth.

Unit years Default 20 Range 0 to 50

Outputs

Advantage Of Converting
About this output

Converting less leaving it alone. Positive means converting keeps more on these assumptions.

Unit currency
Amount Into Roth
About this output

What actually reaches the Roth: the full amount when the tax is funded from outside, or the amount net of tax when it is withheld from the conversion.

Unit currency
Better Option
About this output

Which route comes out ahead, stated in words with the assumptions it rests on.

No unit declared
Break Even Future Rate
About this output

The retirement tax rate at which the two routes keep exactly the same amount. Expect a higher rate than this and converting wins; expect lower and it does not.

Unit fraction
Combined Conversion Rate
About this output

The federal rate plus any optional state rate: the total share of the conversion that goes in tax this year.

Unit fraction
Conversion Tax Bill
About this output

What converting costs you this year, in cash.

Unit currency
Converted Value Later
About this output

What the Roth is worth when you draw it. Nothing further is deducted.

Unit currency
Growth Multiple
About this output

What one unit of money grows to over the period. Both routes share it.

Unit ratio
Model Status
About this output

Reads OK, or explains why the inputs are not valid or why the answer deserves a second look.

No unit declared
Not Converted After Tax
About this output

What you would actually keep from that balance after tax at your retirement rate.

Unit currency
Not Converted Before Tax
About this output

What the balance grows to if you leave it where it is, before any tax.

Unit currency
Outside Cash Required
About this output

The cash you need on hand outside the account to fund the conversion tax. Zero when the tax is withheld from the conversion itself.

Unit currency
This page is provided by LogicCommons for informational purposes only. Results are model outputs computed from the inputs you supply and are not financial, investment, tax, accounting, or legal advice, and no advisory relationship is created. Verify all inputs and results independently before relying on them in any decision.

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Methodology

Purpose and model boundary

Use this calculator to compare converting a traditional retirement balance to Roth now with leaving the balance traditional until a future withdrawal date. It reports after-tax value for both routes, the advantage of one over the other, the conversion tax and the break-even future tax rate.

This is a two-route comparison at one future date. It does not model tax brackets, the conversion's effect on current-year income, state-residency changes, Medicare surcharges, the five-year rule or required minimum distributions.

Inputs and units

Input Unit Accepted range What it means
Tax Rate In Retirement percentage 0–60% The tax percentage you expect when you eventually withdraw money that was not converted. Because it is uncertain, the calculator also reports a break-even rate.
Tax Rate On Conversion percentage 0–60% The marginal tax percentage you would pay on the conversion this year. If the conversion crosses tax bands, use an appropriate blended rate; the calculator applies one flat rate.
Years Until Withdrawal years 0 to 50 How long the money would grow before you draw it. The longer it is, the more a conversion funded from outside money is worth.
Tax Paid From Outside money; The converted balance Where the conversion tax comes from. Outside money means the whole converted amount keeps compounding, which is what usually makes a conversion worthwhile. The converted balance means the tax is withheld from the conversion itself, and then equal tax rates make the two routes identical.
Amount To Convert $ 0 or more The pre-tax retirement balance you are thinking of moving into a Roth. The whole amount is taxable income in the year you convert.
Expected Return percentage 0–25% The average annual return you expect. Both routes use the same rate, so it does not change which route wins when conversion tax comes from the balance.
State Tax On Conversion percentage 0–15% Optional. An additional state or local tax percentage on the conversion. Leave it blank if none applies or if it is already included above.

Governing relationships

The converted route grows to A_in (1 + r)^n. Here A_in is the full balance when conversion tax is paid from outside money, or A (1 - t_conversion) when tax comes from the account. The traditional route grows to A (1 + r)^n and is then taxed, leaving A (1 + r)^n (1 - t_retirement). Equating the two produces the break-even future tax rate 1 - A_in / A; when conversion tax comes from the balance, this equals the conversion tax rate.

Calculation sequence

  1. Read the amount to convert, where the conversion tax is paid from, the federal and state conversion tax rates, the years until withdrawal, the expected return and the retirement tax rate.
  2. Combine the federal and state rates into the total rate applying to the conversion, and compute the conversion tax bill.
  3. Determine the amount that actually enters the Roth: the full amount when the tax is funded from outside money, and the amount less the tax when it is funded from the balance.
  4. Grow that amount at the expected return over the period to get the converted route's ending value, which is not taxed again.
  5. Grow the unconverted amount over the same period and apply the retirement tax rate to get the route left alone.
  6. Subtract the two to get the advantage, and report which route comes out ahead.
  7. Solve for the future tax rate at which the two are equal.
  8. Evaluate the status in the order given below.

Outputs and interpretation

The headline figures are Better Option, Advantage Of Converting and Conversion Tax Bill. Everything else is supporting detail for those.

Output Role Unit What it means
Better Option headline Which route comes out ahead, stated in words with the assumptions it rests on.
Advantage Of Converting headline $ Converting less leaving it alone. Positive means converting keeps more on these assumptions.
Conversion Tax Bill headline $ What converting costs you this year, in cash.
Growth Multiple detail ratio What one unit of money grows to over the period. Both routes share it.
Converted Value Later detail $ What the Roth is worth when you draw it. Nothing further is deducted.
Outside Cash Required detail $ The cash you need on hand outside the account to fund the conversion tax. Zero when the tax is withheld from the conversion itself.
Not Converted Before Tax detail $ What the balance grows to if you leave it where it is, before any tax.
Not Converted After Tax detail $ What you would actually keep from that balance after tax at your retirement rate.
Amount Into Roth detail $ What actually reaches the Roth: the full amount when the tax is funded from outside, or the amount net of tax when it is withheld from the conversion.
Combined Conversion Rate detail percentage Federal plus optional state tax as a percentage of the conversion.
Break Even Future Rate detail percentage The future tax percentage at which conversion and no-conversion routes keep the same amount. Above it conversion wins on these assumptions; below it conversion does not.

Validation and status logic

The workbook evaluates status in this order, and the first condition that is true wins. The status text below is the exact wording the workbook returns; angle brackets mark a value substituted into the message at calculation time.

Condition Returned status
Amount To Convert <= 0 NOT VALID: there is nothing to convert
Years Until Withdrawal < 0 NOT VALID: the period cannot be negative
Expected Return < 0 NOT VALID: the expected return cannot be negative
OR(Combined Conversion Rate < 0,Combined Conversion Rate >= 1) NOT VALID: the combined conversion rate must be at least 0% and less than 100%
OR(Tax Rate In Retirement < 0,Tax Rate In Retirement >= 1) NOT VALID: the retirement rate must be at least 0% and less than 100%
Tax paid from outside money? = 0 CHECK: paying the tax from the converted balance is the case where a conversion rarely pays; compare it against paying from outside money
ABS(Advantage Of Converting) <= 0.005 CHECK: the two routes come out equal on these assumptions
None of the preceding conditions applies OK

Assumptions and limitations

  • Tax rates are single flat rates applied to the whole amount. Bracket effects are not modelled, and a large conversion usually pushes income into higher brackets.
  • Paying the conversion tax from outside money is what makes a conversion favourable. The model shows both cases, and the difference between them is often larger than the difference between the two routes.
  • The same return applies to both routes over the same period.
  • The five-year rule, required minimum distributions, Medicare surcharges and any state tax beyond the single rate you enter are outside the model.

Restrictions and non-computing states

The amount to convert must be greater than zero. Tax rates cannot be negative and are held within their published ranges, as are the expected return and the number of years. The two routes are compared at a single future date, so there is no partial-conversion schedule and no year-by-year bracket management.

Errors and warnings

A rejected entry means a value fell outside the published input rules, and no calculation was attempted. Workbook NOT VALID means the model ran and could not produce a meaningful answer, so the results are withheld. Workbook CHECK means the numbers stand but a condition is worth reading before you rely on them. A connection or calculation-service failure is an availability problem, not a finding of any kind, and never means zero.

References

Roth conversion rules and their tax treatment are set by the Internal Revenue Service; see Roth IRAs, the Roth comparison chart and Publication 590-A, Contributions to Individual Retirement Arrangements. The workbook reproduces no statutory table or threshold: the tax rates are editable inputs and the comparison is derived in the delivered audit.

This model is arithmetic. It is not financial, tax, investment or retirement advice, and it is not a recommendation to save, invest, withdraw, claim or accept any amount. Decisions about retirement funding should be taken with a qualified professional who knows your circumstances.

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