At a glance
- What it is
- Converting pre-tax IRA or 401(k) money to Roth in a year when your income, and your tax bracket, is unusually low.
- What it saves
- The difference between today’s low rate and the higher rate you’d pay when the money comes out later.
- Best fit
- Anyone with pre-tax retirement balances.
- Main catch
- Convert too much and you climb into higher brackets. The amount has to be projected, not guessed.
- Deadline
- December 31. Conversions count in the year they happen and can’t be undone.
Key takeaways
- A low-income-year Roth conversion moves pre-tax IRA or 401(k) money to Roth while your tax bracket is unusually low.
- Low years can come from a business loss, large depreciation, a sabbatical, early retirement, or the gap before claiming Social Security.
- In the illustrative example, converting $50,000 at 12% saves $6,000 to $12,500 of federal tax versus withdrawing it later at 24% or 37%.
- The catch: a conversion can’t be reversed, so the amount must be projected to fill the low bracket without going over.
Watch the story
A one-minute story about this strategy. Illustrative story; the people are fictional and are not clients. See all story videos.
The numbers
Picture a business owner who is normally in the 24% to 37% brackets. This year a large equipment purchase and a slow quarter pull taxable income down into the 12% bracket, with room to convert $50,000 before reaching the next bracket.
Federal income tax on $50,000 of IRA money
For illustration purposes. Tax law may change, which may change these calculations slightly.
| Rate | Federal tax | |
|---|---|---|
| Converted this year | 12% | $6,000 |
| Withdrawn later, in a normal year | 24% | $12,000 |
| Withdrawn later, in a high year | 37% | $18,500 |
Converting now saves $6,000 to $12,500 of federal tax on that $50,000 ($12,000 − $6,000, or $18,500 − $6,000), and every dollar it grows to afterward comes out tax-free if the Roth rules are met.
Oklahoma income tax
Oklahoma generally taxes the conversion too: $50,000 × 4.5% = about $2,250. Unlike the federal brackets, Oklahoma’s rate doesn’t drop much in a low-income year, so the state tax is roughly the same whether you convert now or withdraw later, assuming you still live here.
Fill the bracket on purpose. The goal is to convert up to the top of a low bracket, not past it. That takes a projection of the whole year’s income before December 31.
Could this strategy work for your business?
In a free tax analysis, your tax strategist checks whether it fits and what it could save, using your real numbers.
How it works
- Spot the low year. A business loss, large depreciation, a sabbatical, the gap between selling a business and claiming Social Security, or early retirement.
- Project the year. Estimate taxable income through December 31 and see how much room is left in the current bracket.
- Convert that amount. Move pre-tax IRA or 401(k) money to Roth before year-end.
- Pay the tax from other money. Paying it from outside savings keeps more growing tax-free. Plan the estimated payment so there’s no underpayment penalty.
Who it fits
- Anyone with pre-tax retirement balances who has a year of unusually low income.
- Business owners with a loss or a big depreciation year, such as a new building or equipment purchase.
- Owners who expect to be in a higher bracket in retirement, or who want to leave tax-free money to heirs.
When it doesn’t fit
- Years when your income is already normal or high.
- Owners who would have to pay the tax out of the IRA itself, especially before 59½.
- People close to income-based thresholds, such as Medicare premium surcharges or health insurance premium credits, where the extra income has hidden costs.
The rules
- Taxed as ordinary income. The pre-tax amount converted is added to your income for the year.
- No income limit. Anyone can convert, at any income.
- No undo. Since 2018, a Roth conversion can’t be reversed if the year turns out differently than projected.
- Five-year rule. If you are under 59½, each conversion has its own five-year clock before the converted amount can be withdrawn without penalty.
- Brackets are now permanent. The July 2025 federal tax law made the current brackets permanent, so the case for converting rests on your own income, not a scheduled rate increase.
Risks to weigh
- Overshooting the bracket. A late-year bonus or a better-than-expected December can push the conversion into a higher rate.
- Hidden costs. More income can reduce deductions and credits, raise Medicare premiums two years later, or affect financial aid.
- Losses that can’t be used. Some business losses are limited or carried forward. Converting assumes the loss actually lowers this year’s income.
How we handle it for clients
With a Cannon & Brown tax plan, we watch for low-income years in your quarterly projections, calculate how much room is left in your bracket before December, and size the conversion and the estimated payment so you fill the bracket without going over. Because our technology keeps your numbers current all year, we can test this strategy against your real numbers and adjust it as your business changes.
Illustrative example. The business owner and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes $50,000 of room in the 12% federal bracket, future withdrawals taxed at 24% or 37%, and a 4.5% Oklahoma rate. This page is educational and is not tax advice for your situation; tax rules and limits change.
Brooks leads Cannon & Brown Tax Advisors, a forward-thinking tax firm serving business owners in Oklahoma and beyond. He builds year-round tax strategies that help business owners keep more of what they earn and reach their goals. More about Brooks
Common questions about Roth conversions in a low-income year
Can I do a Roth conversion if my income is too high for a Roth IRA?
Yes. There is no income limit on Roth conversions; anyone can convert, at any income. The pre-tax amount converted is added to your income for the year as ordinary income.
Does Oklahoma tax a Roth conversion?
Oklahoma generally taxes the conversion too. Because Oklahoma’s rate doesn’t drop much in a low-income year, the state tax is roughly the same whether you convert now or withdraw later, assuming you still live here.
Should I pay the conversion tax out of my IRA?
Usually it’s better to pay it from outside savings, which keeps more money growing tax-free. Having to pay the tax out of the IRA itself, especially before 59½, is one of the situations where a conversion often doesn’t fit.
Can I undo a Roth conversion if my income ends up higher than expected?
No. Since 2018, a Roth conversion can’t be reversed, so a late-year bonus or a better-than-expected December can push it into a higher bracket. That’s why the amount should come from a projection of the whole year’s income.
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