The full cost of a Roth conversion

They want a bigger Roth. They also need the cash for life.

Daniel and Nora consider a $100,000 conversion—but their cash reserve already has commitments attached.

Hypothetical educational illustration · Fictional households and numbers

Hypothetical educational illustration inspired by retirement-planning situations. Names, balances, expenses and circumstances below are invented assumptions, not a particular client’s facts or results. These stories are not testimonials, investment-performance presentations or promises of tax savings.

The conversion target is not the whole picture

Daniel and Nora, both 62, have $1.8 million in pretax retirement accounts, $250,000 in Roth IRAs and $90,000 in outside cash in this fictional example. They are considering a $100,000 Roth conversion. They also expect $40,000 of home-related spending and have health coverage purchased through a marketplace.

They want to evaluate future tax flexibility, including the possibility that one spouse will eventually file alone. But Nora is concerned about current healthcare costs, and Daniel does not want their bill-paying reserve to disappear. These are invented concerns, not statements attributed to clients.

Give the cash its other jobs first

If the $40,000 commitment is paid entirely from cash, $50,000 remains before conversion taxes, ordinary spending or other flows. That is a starting constraint, not a recommendation for how large their reserve should be.

The amount proposed for conversion is not the amount of tax due. A proper estimate would account for their other income, deductions and applicable rules. Depending on eligibility and current law, conversion income can also affect income-sensitive healthcare benefits or costs. Those effects need their own calculation rather than an assumed surcharge.

Compare the next increment—not just the ambition

They could compare a $100,000 conversion, a smaller $50,000 conversion and no conversion this year. These are hypothetical alternatives, not prescribed amounts. For each, they would identify current tax and relevant healthcare effects, the payment source and reserves remaining.

A smaller conversion might preserve more near-term liquidity but create less Roth funding now. Deferring avoids the current conversion cost but leaves that money subject to future pretax-account rules. Converting more may offer greater future flexibility while consuming resources needed today. Whether the future benefit justifies the cost is uncertain.

A good plan can change its mind

Before acting, the couple would update their income estimate, coverage details and spending commitments. They would also test how different future tax and withdrawal assumptions affect the decision. No return, tax saving or break-even outcome is assumed in this story.

The useful change is in the question: not how large can the Roth become, but how much conversion fits this year without crowding out the rest of their lives? A smaller amount or a pause can be a deliberate decision—not a failure to plan.