Common Roth Conversion Mistakes

Common Roth Conversion Mistakes: The 7 Errors That Cost Thousands (Nov 14, 2025)

Description: 🚫 The 7 Most Expensive Roth Conversion Mistakes – In this 4-minute breakdown, Tony Leonardi, CFP® from Newtown, CT, reveals the costly errors people make with Roth conversions and exactly how to avoid them.

MISTAKE #1: Converting Without a Financial Plan
The Error: Someone hears "Roth conversions are great!" and converts $200,000 all at once without any analysis.
What Happens: They jump from the 22% bracket straight to the 37% bracket.
Cost of not planning: $12,000
And this assumes they didn't trigger IRMAA or lose ACA subsidies. Real cost could be $30,000+.
The Solution: Build a financial model showing optimal conversion amounts year-by-year.

MISTAKE #2: Ignoring the Pro-Rata Rule
The Error: Client thinks, "I have $50,000 of after-tax basis in my IRA. I'll just convert that $50,000 and pay no taxes!"
The Reality: The IRS doesn't work that way. The pro-rata rule says you must aggregate ALL traditional IRAs and every conversion pulls out a proportionate mix of taxable and non-taxable money.

You CANNOT convert only the $50,000 after-tax portion.

The Solution: Work with a CPA who understands Form 8606 and can calculate your pro-rata percentage correctly.

MISTAKE #3: Forgetting State Taxes
The Error: Client focuses only on federal tax brackets and forgets they live in a high-tax state.
Example: Connecticut resident converts $86,700:
• Federal tax (22%): $19,074
• CT state tax (5%): $4,335
• Total: $23,409 (27% effective rate)
They budgeted for $19,074 and got surprised by the extra $4,335.

The Solution: Your financial model must include state taxes. A 24% federal conversion might really cost 30%+ depending on where you live.

MISTAKE #4: Triggering IRMAA Unnecessarily
The Error: Client converts just a bit too much and crosses the Medicare IRMAA threshold.
The Thresholds (2025):
• Single: $103,000
• Married: $206,000

The Solution: If you're near IRMAA thresholds, convert up to the threshold, not over it. Or skip that year entirely.

MISTAKE #5: Thinking You Can Reverse Conversions
The Error: "I'll convert now, and if the market drops or my situation changes, I'll just undo it."
The Reality: Since 2018, Roth conversions are IRREVOCABLE. You cannot "recharacterize" (reverse) them.
Why This Is Costly:
• Convert $100,000
• Market drops 30%
• Your Roth is now worth $70,000
• You still owe taxes on $100,000
• You paid taxes on $30,000 that disappeared
Before 2018, you could have reversed this. Now? You're stuck.
The Solution: Only convert amounts you're 100% committed to. Consider market timing (convert during dips, not peaks).

MISTAKE #6: Converting Too Much Too Fast
The Error: Client hears tax rates might go up someday, panics, and converts their entire $500,000 IRA in one year.
What Happens: They blow through EVERY tax bracket:
• 22%, 24%, 32%, 35%, 37%
• Average rate: ~30%
• Total taxes: ~$150,000
If They Had Been Patient: Convert $86,700 annually for six years, staying at 22%:
• Total taxes: $114,324
• Savings: $35,676
Plus, they avoid:
• IRMAA triggers
• ACA subsidy loss (if applicable)
• Phaseouts of other deductions
The Solution: Slow and steady wins. Your financial model shows the optimal multi-year path.

MISTAKE #7: Not Having Cash to Pay Taxes
The Error: Client converts $100,000 and has to withhold $22,000 for taxes because they don't have outside cash.
The Math:
• Amount converted: $100,000
• Taxes withheld: $22,000
• Amount reaching Roth: $78,000
That $22,000 could have been compounding tax-free for 20-30 years.
Example - 20 Years:
• $22,000 at 7% growth = $85,036
• They gave up $63,036 in potential growth
The Solution: Only convert amounts you can pay taxes on from outside funds (savings, checking). If you don't have the cash, convert smaller amounts or wait until you do.
THE COMMON THREAD: All seven mistakes share one thing: lack of planning and professional coordination.

How to Avoid All Seven:
1. Build comprehensive financial model
2. Work with both CFP® and CPA
3. Calculate multi-year strategy
4. Account for state taxes and IRMAA
5. Have cash for taxes
6. Remember conversions are irrevocable
7. Be patient and strategic

Resources:
📊 Mistake-Free Conversion Planning: LeonardiFamilyWealthcare.com/assessment
📖 Book: A Smarter Way to Retire: 10 Steps Towards a Confident Financial Future
📱 Follow: @TonyLeonardiCFP (Instagram) | Leonardi Family Wealthcare (Facebook)
🎧 Full Deep Dive Episode: Listen on Spotify | Apple Podcasts

Compliance Note: Examples shown are for educational purposes. Individual situations vary significantly. Roth conversions are irrevocable since 2018. Pro-rata rules apply to aggregate IRA balances. IRMAA thresholds and tax brackets subject to change. Consult with CFP® and CPA before implementing.

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