Tax Planning Guide

Partial Roth IRA Conversion Strategy: What High-Income Earners Should Know

A partial Roth IRA conversion lets you move a specific dollar amount from a traditional IRA into a Roth IRA in a given tax year, paying ordinary income tax on only what you convert, rather than your entire balance. For high-income earners in Pennsylvania, a thoughtfully sized partial conversion may reduce future required minimum distributions, lower lifetime tax exposure, and improve wealth transfer outcomes for heirs — but only when timed and sized correctly relative to your bracket.

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CFA Jonathan Dane, CFA, CFP

RIA Independent Fiduciary

PA Pennsylvania-Specific Guidance

The Core Concept

What Is a Partial Roth IRA Conversion?

A partial Roth IRA conversion is the process of transferring a portion — rather than the entirety — of a traditional IRA, SEP IRA, or SIMPLE IRA into a Roth IRA in a given tax year. The converted amount is added to your ordinary taxable income for that year and taxed at your marginal rate. Future growth and qualified withdrawals from the Roth are tax-free under current law.

Unlike a full conversion, a partial conversion gives you precision. You can deliberately target a specific dollar amount to fill a tax bracket to its ceiling, avoid crossing into a higher marginal rate, or stay below income thresholds that trigger the Medicare Investment Income Surtax (also called the Net Investment Income Tax, or NIIT), which applies at an additional 3.8% on net investment income for individuals earning above $200,000 or couples above $400,000, as of 2026.

There is no IRS-imposed limit on the number of partial conversions you can do in a year, and there is no income cap that prevents high earners from converting. The key constraint is the tax cost you are willing and able to absorb in the year of conversion — and whether that cost is justified by the long-term tax benefit.

For founders, executives, and high-income earners with large traditional IRA balances, partial conversions are often evaluated as part of a multi-year tax planning strategy rather than a one-time event.

2026 Federal Tax Brackets at a Glance

Partial conversions are often sized to stay within a specific bracket ceiling. Understanding where you fall is the starting point.

Rate	Single Filer	Married Filing Jointly
10%	Up to $11,925	Up to $23,850
12%	$11,926 – $48,475	$23,851 – $96,950
22%	$48,476 – $103,350	$96,951 – $206,700
24%	$103,351 – $197,300	$206,701 – $394,600
32%	$197,301 – $250,525	$394,601 – $501,050
35%	$250,526 – $626,350	$501,051 – $751,600
37%	Over $626,350	Over $751,600

Source: IRS Rev. Proc. 2025-61. Brackets reflect 2026 inflation adjustments. Individual tax situations vary.

Strategic Timing

When a Partial Roth IRA Conversion May Make Sense

A partial conversion is not inherently better or worse than a full conversion. The question is whether the after-tax math favors conversion in your current year versus deferring tax to a future year. Several planning scenarios tend to make partial conversions worth serious consideration.

Low-Income Gap Years

A year between employment, a sabbatical, or a year-end business loss can push your taxable income temporarily lower than normal — creating capacity to convert at a lower effective rate than future years may allow. Partial conversion in this window can be advantageous, though conversion still adds to ordinary income and should be modeled carefully.

Pre-RMD Window (Ages 60 to 72)

Required minimum distributions begin at age 73 under the SECURE 2.0 Act. The years between retirement and RMD onset often represent a window where income is lower and bracket capacity exists. Systematic partial conversions during this period can reduce the size of future RMDs and the associated tax drag on retirement income, though each year requires individual analysis.

Bracket Ceiling Management

If your projected taxable income for the year lands below the ceiling of your current bracket, converting enough to fill that bracket — but not enough to spill into the next — keeps the conversion at the lower marginal rate. This "bracket filling" approach is a common multi-year partial conversion framework, though it requires careful income projection before executing.

Large Deduction Years

Significant charitable deductions — such as a large contribution to a donor-advised fund — can offset some of the income generated by a partial conversion in the same year. The deduction does not eliminate the tax entirely, and itemized deductions remain subject to the standard deduction comparison, but it can reduce net taxable impact in high-giving years.

Estate Transfer Planning

Under the SECURE Act, most non-spouse IRA beneficiaries must distribute inherited IRA assets within 10 years. If your heirs are likely to be in a high tax bracket during that window, converting to Roth during your lifetime may reduce the overall income tax burden on the inherited account — though the appropriateness of this approach depends heavily on each family's individual tax profile.

Future Tax Rate Uncertainty

Several provisions from the Tax Cuts and Jobs Act of 2017 are currently scheduled to sunset after 2025, pending Congressional action. If current rates prove lower than future rates, pre-paying tax at today's rate through a partial conversion may reduce lifetime tax liability. This is an uncertain bet — legislative outcomes are unpredictable — but it is a factor many high-income earners weigh in their planning.

Side-by-Side Analysis

Partial vs. Full Roth IRA Conversion: Key Trade-Offs

Neither a full nor partial conversion is universally better. The right approach depends on your current income, tax bracket, available liquidity to pay the tax bill, time horizon, and estate objectives. The comparison below outlines the structural differences to help frame the conversation with your advisor.

Planning Factor	Partial Conversion	Full Conversion
Tax impact in year of conversion	Limited to the converted amount; can be sized to fit within a specific bracket	Entire pre-tax balance added to income; may push into higher brackets or trigger surtaxes
Flexibility and control	High — amount can be adjusted each year based on projected income and bracket capacity	Low — all-or-nothing approach limits year-to-year tax planning flexibility
Time to tax-free status	Longer — may take multiple years to convert the full balance if that is the goal	Shorter — entire balance becomes Roth immediately, subject to the 5-year rule
RMD reduction	Gradual reduction over multiple years as converted amounts grow tax-free in Roth	Immediate elimination of RMDs on converted assets (Roth IRAs have no RMD requirement for the original owner)
Cash needed to pay taxes	Lower — tax bill is sized to the portion converted; preserves liquidity	Higher — large tax bill may require drawing from other assets or (less advisably) from the converted amount itself
NIIT and Medicare surtax risk	Lower — can be sized to stay under thresholds if income allows	Higher — large conversion likely to push modified AGI well above surtax thresholds
Estate planning benefit	Delivered incrementally; allows coordination with other estate moves each year	Immediate; heirs inherit a Roth IRA with no pre-tax obligation on the original owner's end
Best suited for	High earners with large IRAs who want controlled, multi-year bracket management	Individuals with smaller balances, significant deductions, or a very low-income year that absorbs the tax cost

The above represents general planning considerations, not personalized advice. Individual tax situations vary materially. Consult a qualified tax or financial advisor before executing any conversion strategy.

Pennsylvania-Specific Considerations

How Pennsylvania Taxes Roth Conversions

Pennsylvania's income tax treatment of Roth IRA conversions differs from federal treatment in a way that is often overlooked — and frequently misunderstood — by high-income earners in the Pittsburgh region and across the state.

Pennsylvania taxes income at a flat rate of 3.07%, as of 2026. However, the Commonwealth does not conform to federal rules on IRA distributions in all cases. Under Pennsylvania law, amounts contributed to a traditional IRA on a pre-tax basis are generally not deductible at the state level — and as a result, Pennsylvania generally does not tax the same contributions again upon distribution or conversion, provided the funds represent a return of previously taxed basis.

In practical terms, this means:

1 If your traditional IRA contributions were made with after-tax dollars at the Pennsylvania level (i.e., not deducted on your PA return), the conversion may not be taxable for PA purposes on those contributions.
2 Earnings on those contributions that have grown inside the IRA may still be subject to Pennsylvania income tax upon conversion, depending on the structure and sourcing of the distribution.
3 Pennsylvania also does not impose a penalty on early distributions from IRAs for individuals who have retired or separated from service, which differs from the federal 10% early withdrawal penalty. However, the conversion itself — not a distribution — does not trigger federal early withdrawal penalties regardless of age.

This complexity makes a multi-layered analysis — federal tax, Pennsylvania income tax, and potential inheritance tax implications — a necessary step before sizing any partial conversion. The state and federal tax pictures do not always move in the same direction.

Pennsylvania also has no general inheritance tax on assets passing to a surviving spouse (taxed at 0%) and imposes varying rates on transfers to other beneficiaries. Roth IRA assets transferred to a spouse pass at 0%; assets to children are taxed at 4.5% as of 2026, under current PA inheritance tax rules. Whether conversion reduces or increases the total inheritance tax burden depends on the size of the estate and beneficiary structure — a point worth modeling before committing to a conversion schedule. See our Pennsylvania inheritance tax planning guide for further context on how these rules interact with estate design.

Pennsylvania Income Tax: Key Facts for 2026

Flat rate: Pennsylvania taxes personal income at a flat 3.07% — not a graduated rate like the federal system.

IRA basis: Pennsylvania generally does not re-tax contributions that were made with after-tax dollars at the state level, which is the norm for most PA residents because PA does not allow an IRA deduction.

No AGI-based thresholds: Pennsylvania does not use adjusted gross income in the federal sense, so federal triggers (like the NIIT) do not directly translate to Pennsylvania tax consequences.

Coordination required: Modeling both federal and Pennsylvania tax impact of a Roth conversion requires tracking IRA basis carefully across both return types. This is frequently miscalculated without experienced guidance.

A Note on Federal and PA Decoupling

Pennsylvania does not automatically conform to federal tax law changes. Legislative changes at the federal level — including any changes to Roth or IRA rules resulting from Congressional action in 2026 — may or may not be adopted by Pennsylvania in the same tax year. Reviewing both layers annually is a practical requirement, not an optional step, for Pennsylvania residents conducting multi-year conversion planning.

Execution Framework

How to Size a Partial Roth Conversion

Sizing a partial conversion is not a simple formula. It begins with a projection of your total taxable income for the year, then works backward to determine how much additional income — in the form of a conversion — you can absorb before crossing a threshold you want to avoid. Below is the general analytical framework our team uses when working through this decision with clients.

Project Total Income for the Year

Include all income sources: W-2 wages, business income, capital gains, dividends, Social Security benefits, and any other taxable distributions. This establishes the baseline before any conversion is layered on top. The projection should be done well before year-end — ideally by September or October — to allow time to act before December 31.

Identify Your Conversion Capacity

Determine how much room exists between your projected income and the ceiling of your current tax bracket — or the next threshold you want to avoid (such as the NIIT income threshold of $200,000 for single filers or $250,000 for married filers, or the 32% bracket entry at $197,301 for single filers in 2026). That gap is your theoretical conversion capacity for the year, before considering other factors.

Model the Break-Even Horizon

A partial conversion costs money today — the tax you pay on the converted amount. The question is whether you recover that cost through future tax savings. Break-even analysis compares the pre-tax investment return on assets that remain in the traditional IRA (and are ultimately taxed) against the tax-free return on those same assets in a Roth. Generally, a longer time horizon and higher expected growth rate strengthen the case for conversion. Shorter horizons or lower expected growth may not justify the upfront cost.

Confirm You Can Pay the Tax from Outside the IRA

Paying the conversion tax from outside the IRA — from a taxable brokerage account or cash reserve — preserves the full converted amount inside the Roth to compound tax-free. Paying the tax from the converted amount itself reduces the effective value of the conversion and significantly reduces its long-term benefit. If outside liquidity is not available, that is an important constraint on how much to convert.

Coordinate with Your Broader Plan

A partial Roth conversion does not exist in isolation. It interacts with capital gains harvesting decisions, charitable giving strategies, Medicare premium calculations (IRMAA), and for Pennsylvania residents, the PA inheritance tax structure. The decision should be reviewed as part of an integrated annual tax plan — not executed as a standalone move. Our team at Defiant Capital Group works with high-income earners and founders to model these interactions before recommending a conversion amount. You can also explore the 32% bracket threshold strategy as a complementary framework.

What to Watch For

Common Mistakes in Partial Roth Conversion Planning

Partial conversions are not inherently complex, but the planning around them is. Several miscalculations appear consistently in high-income situations, and most are avoidable with coordinated analysis.

Underestimating Total Income

Many high-income earners project income based on salary alone and forget to account for capital gains distributions from mutual funds, year-end bonuses, or deferred compensation income. A conversion sized against an incomplete income projection can inadvertently push you into the next bracket or trigger the NIIT.

Converting from the Wrong Account

A partial conversion works best when you convert a strategically selected portion of your IRA and pay the tax from non-retirement assets. Drawing the tax payment from the converted IRA itself reduces the effective amount that ends up in the Roth and undercuts the math that justified the conversion in the first place.

Ignoring the 5-Year Rule

Roth IRA conversions are subject to a 5-year holding period before the converted amount can be withdrawn tax- and penalty-free. Each conversion starts its own 5-year clock. Planners who are close to age 59.5 or who may need access to funds within five years should factor this rule into the decision before converting. This constraint matters less for long-horizon planners but is a real risk for those converting in or near early retirement.

Triggering IRMAA Surcharges

Medicare Part B and Part D premiums are determined by Modified Adjusted Gross Income from two years prior. A large Roth conversion in 2026 could increase your IRMAA surcharges in 2028. For clients at or near Medicare age, the IRMAA impact should be explicitly modeled as part of the conversion cost — it is frequently overlooked.

Not Tracking Pennsylvania IRA Basis

Pennsylvania does not always conform to federal IRA tax treatment. High-income Pennsylvania residents who have not maintained accurate PA cost basis records for their IRA contributions may overpay state tax on conversions — or make errors in the opposite direction. Maintaining proper basis documentation at both the federal and state level is a practical necessity.

Treating Conversion as a One-Year Decision

The biggest mistake may be evaluating a partial conversion in isolation rather than as part of a multi-year strategy. The real value of a partial conversion plan is the ability to move pre-tax assets to Roth over multiple years in a controlled, bracket-aware manner. One-off conversions without a long-term view often miss the compounding benefit that makes the strategy worthwhile. Consider reviewing our retirement tax trap guide and our Roth conversions in retirement resource for the longer-term framework.

Our Perspective

"The most common mistake we see is treating a Roth conversion as a one-time decision made in isolation. For high-income earners with large IRA balances, the opportunity is in the multi-year strategy — sizing each year's conversion to the available bracket room and coordinating it with charitable giving, capital gains, and estate planning in an integrated tax plan."

Jonathan Dane, CFA, CFP — Co-Founder and Chief Investment Officer, Defiant Capital Group

Frequently Asked Questions

Partial Roth IRA Conversion: Common Questions Answered

The questions below reflect the most common points of confusion our team encounters when working through Roth conversion decisions with high-income earners and pre-retirees in Pennsylvania.

Can I do a partial Roth IRA conversion?

Yes. The IRS does not require you to convert an entire IRA balance. You may convert any dollar amount you choose in a given tax year, as long as the funds come from an eligible traditional IRA, SEP IRA, or SIMPLE IRA (subject to SIMPLE IRA timing restrictions). You can do multiple conversions in the same year and in subsequent years. There is no income limit that prevents high earners from converting.

What is the biggest Roth conversion mistake for high-income earners?

The most consequential mistake is converting too much in a single year — pushing income into the next tax bracket, triggering the 3.8% Net Investment Income Tax, or generating IRMAA surcharges on Medicare premiums two years later. A partial conversion approach — sized to your actual bracket capacity — is designed to avoid these overshoots. Paying the tax bill from the converted account rather than from external assets is a close second in terms of costly errors.

At what age do Roth conversions no longer make sense?

There is no hard age cutoff. The analysis depends on your remaining tax-free compounding horizon, whether you expect to need the funds, and your estate planning goals. Generally, conversions become less favorable as life expectancy shortens and the tax-free compounding window narrows. However, for individuals with significant IRA assets who want to reduce the tax burden on heirs — who face a 10-year distribution window under the SECURE Act — a Roth conversion may remain beneficial even later in life. The decision requires case-by-case modeling, not a general rule of thumb.

Can you convert a partial 401(k) to a Roth IRA?

Yes, with important caveats. In-service conversions from a 401(k) to a Roth IRA are generally not permitted while you are still actively employed with the plan sponsor, unless your plan explicitly allows in-service distributions. After separation from service, you may roll over traditional 401(k) assets to a traditional IRA and then convert a portion to Roth. If your plan includes a Roth 401(k) option and allows in-plan Roth conversions, you may be able to convert a portion without a rollover. Each plan's terms govern what is permissible.

How do I move money from an IRA to a Roth IRA (partial conversion)?

The most common method is a direct trustee-to-trustee transfer: you instruct your IRA custodian to move a specific dollar amount from your traditional IRA to your Roth IRA at the same institution, or to a new Roth IRA at another institution. The custodian will report the taxable amount on a Form 1099-R. You report the conversion on IRS Form 8606 and include the taxable amount in your ordinary income for the year. Timing matters: a conversion must be completed by December 31 to count for that tax year. You cannot reverse (or "recharacterize") a Roth conversion under current law — the Tax Cuts and Jobs Act of 2017 eliminated that option.

Are Roth conversions taxable in Pennsylvania?

The Pennsylvania tax treatment of Roth conversions is nuanced. Pennsylvania generally does not allow a deduction for traditional IRA contributions, which means most PA residents have already paid state income tax on those contributions. As a result, the basis (i.e., the previously taxed contributions) may not be taxable again at the state level upon conversion. However, earnings that have accumulated inside the IRA on a tax-deferred basis may be subject to Pennsylvania's 3.07% flat income tax upon conversion. Maintaining accurate IRA basis records at both the federal (Form 8606) and Pennsylvania level is essential for calculating the correct state tax on any conversion. Individuals with employer-sponsored plans that were rolled into IRAs may have different basis treatment. Pennsylvania residents should model the state and federal tax impact of any conversion separately.

How We Approach This

Integrated Tax Planning for High-Income Earners in Pittsburgh

At Defiant Capital Group, we work with founders, business owners, high-income W-2 earners, and affluent Pennsylvania families for whom a partial Roth conversion is one component of a broader tax strategy — not a standalone decision.

Our approach begins with a detailed income projection for the current year, factoring in all taxable sources including equity compensation, capital gains, deferred compensation payouts, and business income. From there, we assess conversion capacity relative to bracket thresholds, NIIT triggers, and IRMAA considerations, and model the interaction with the client's charitable giving plan, estate design, and Pennsylvania-specific tax picture.

Where partial conversions fit, we design a multi-year schedule aligned with the client's overall wealth plan — not just the current tax year. We coordinate directly with the client's CPA or tax attorney to ensure the strategy is executed consistently across both tax filings.

For high-income W-2 earners looking at additional strategies, our W-2 tax planning guide covers the full range of approaches available before and after conversion decisions. For business owners evaluating the role of Roth assets in a liquidity event context, our team can model the interaction with business sale proceeds and the PA tax framework.

Jonathan Dane, CFA, CFP leads our tax planning and investment strategy work. As an independent, always-fiduciary RIA, our analysis is driven solely by what makes sense for your tax position and long-term wealth plan — not by product or institutional interests. Tax planning strategies seek to reduce the tax burden over time, but outcomes vary by individual circumstances and involve trade-offs that should be evaluated before acting.

What We Consider in a Partial Conversion Analysis

1 Full income projection for the current tax year across all sources
2 Federal bracket capacity and applicable surtax thresholds
3 Pennsylvania income tax treatment, including IRA basis tracking
4 IRMAA two-year look-back and Medicare premium impact
5 Break-even horizon relative to expected investment growth and time horizon
6 Coordination with charitable giving, capital gains, and estate transfer strategies
7 Heir tax profile and impact of the SECURE Act 10-year distribution rule

Related Resources

Take the Next Step

Is a Partial Roth Conversion Part of Your 2026 Tax Plan?

The window to execute a 2026 Roth conversion closes on December 31. If you have a large traditional IRA balance and are looking to manage future tax exposure through a disciplined, multi-year conversion strategy, our team is available to model the options specific to your situation.

Defiant Capital Group serves high-income earners, founders, business owners, and affluent Pennsylvania families from our Pittsburgh office and virtually across the US. Our advisory is always fiduciary — your tax outcome, not any product or institution, drives every recommendation.

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