Why You Should Consider a Roth Conversion This Year

7 January 2026

Why You Should Consider a Roth Conversion This Year is a question that every proactive investor must answer as we navigate the fiscal landscape of 2026. At The Fund Path, we view financial planning not as a static set of rules, but as a dynamic strategy that must adapt to changing laws. With the recent passage of the “One Big Beautiful Bill Act” (OBBBA), the long-feared “tax sunset” of the previous decade has been replaced by a new, permanent set of brackets. However, while some rates have stabilized, the strategic advantage of the Roth IRA has never been more pronounced. This guide explores why moving your traditional, tax-deferred assets into a tax-free Roth account in 2026 could be the most significant wealth-building move you make this decade.

Table of Contents

1. Locking in Tax Certainty in an Uncertain Future

The most compelling reason for a Roth conversion is the shift from “tax-deferred” to “tax-free.” In a Traditional IRA, you are essentially making the government a co-owner of your account. When you withdraw funds in retirement, the government takes its share at whatever the tax rates happen to be at that future date.

By converting to a Roth IRA in 2026, you choose to pay taxes now at a known rate.

The Strategic Shift: In 2026, the top marginal tax rate remains at 37%, and many middle-income brackets have stayed lower than their pre-2018 levels due to the OBBBA.
The Path Insight: If you believe that government spending and national debt will eventually force tax rates higher in the 2030s or 2040s, paying taxes today is a “discount” on your future liability.

2. Elimination of Required Minimum Distributions (RMDs)

One of the most powerful features of the Roth IRA is that it does not have Required Minimum Distributions (RMDs)for the original owner.

Traditional IRAs force you to start taking withdrawals (and paying taxes) once you reach age 73 or 75, regardless of whether you need the money. This can often push retirees into a higher tax bracket and increase the cost of their Medicare premiums.

The 2026 Advantage: A Roth conversion allows you to deplete your tax-deferred buckets now, reducing the size of your future RMDs. This gives you total control over your income in retirement, allowing you to stay in lower tax brackets for longer.

3. The “Tax Diversification” Strategy

On The Fund Path, we often talk about diversifying your assets (stocks vs. bonds). However, tax diversification is equally important. Having money in three “buckets” Taxable (Brokerage), Tax-Deferred (401k/IRA), and Tax-Free (Roth) gives you a “financial dashboard” to control your tax bill.

In a year where your income might be lower than usual perhaps due to a career transition, early retirement, or business fluctuations a Roth conversion allows you to “fill up” lower tax brackets with converted income. In 2026, for a married couple filing jointly, you can have a taxable income of up to $100,800 and stay within the 12% bracket. Converting just enough to hit the top of that bracket is a masterclass in tax efficiency.

4. Estate Planning: A Tax-Free Legacy for Heirs

If you intend to leave an inheritance, a Roth IRA is one of the most valuable assets you can pass down. Under the SECURE Act 2.0 rules that are in full effect by 2026, most non-spouse beneficiaries must empty an inherited IRA within 10 years.

Traditional IRA Inheritance: Your children or heirs will likely be in their peak earning years when they inherit your account. Forcing them to withdraw large sums of taxable income on top of their salaries can result in a massive tax hit.
Roth IRA Inheritance: Your heirs still have to empty the account within 10 years, but every penny they withdraw is 100% tax-free. This makes a Roth conversion a powerful gift to the next generation.

5. Starting the “Five-Year Clock”

To withdraw earnings from a Roth IRA tax-free, you must meet two conditions: you must be at least 59½ years old, and the account must have been open for at least five years.

Each Roth conversion starts its own five-year “clock” for the principal, but the general five-year rule for earnings starts with your first Roth contribution or conversion. If you haven’t started your Roth journey yet, executing a conversion in 2026 starts the timer, ensuring you have tax-free access to your wealth as early as 2031.

Key Considerations: The “Cost” of Conversion

A Roth conversion is not a free lunch. You must pay ordinary income tax on the amount you convert in the year of the conversion.

Pro Tip: Ideally, you should pay the tax bill using cash from a taxable brokerage account, not from the IRA itself. This allows the maximum amount of capital to stay inside the tax-free Roth wrapper to compound over time.
The 2026 Threshold: Be mindful of IRMAA (Income Related Monthly Adjustment Amount). If a large conversion pushes your modified adjusted gross income too high, it could increase your Medicare premiums two years down the line.

Conclusion: Taking Control of the Path

A Roth conversion is more than just a tax move; it is an act of financial sovereignty. It is the decision to settle your debt with the IRS today so that you can enjoy the full fruits of your labor tomorrow.

At The Fund Path, we recommend reviewing your tax projections for 2026 with a qualified professional. If you find yourself in a lower-than-average tax year, or if you simply value the peace of mind that comes with tax-free growth, a Roth conversion might be the most strategic step you take this year.

Don’t wait for the government to change the rules. Change the game yourself.