Roth Conversion Strategy in Seattle: 2025 Guide

A Roth conversion is one of the most powerful wealth-building tools available to high-net-worth investors, but executing it poorly can trigger massive, irreversible tax consequences. Because we operate as both CPAs and CFPs, we view Roth conversions through a dual lens.

The Mechanics of a Roth Conversion

At its core, a Roth conversion involves moving funds from a traditional, pre-tax retirement account (like a Traditional IRA or 401k) into a post-tax Roth IRA.

The Catch: The amount you convert is added to your ordinary income for the year, subject to federal income tax.
The Reward: Once the money is in the Roth IRA, it grows completely tax-free forever, and all qualified withdrawals are tax-free. Furthermore, Roth IRAs are not subject to Required Minimum Distributions (RMDs) during your lifetime.

The "Valley of Lower Income" Strategy

The mathematical goal of a Roth conversion is simple: pay taxes on the money now at a lower tax rate than you expect to pay in the future.

For our clients, the most effective time to execute a series of Roth conversions is during the "Valley of Lower Income"—the period between retirement (when wage income drops) and age 73 (when large RMDs and Social Security begin).

During these gap years, many high-net-worth individuals find themselves in surprisingly low tax brackets (e.g., 22% or 24%). By intentionally filling up those lower brackets with Roth conversions, we move hundreds of thousands of dollars out of taxable accounts before they are subjected to higher rates later.

SECURE 2.0 Changes & 2025 Considerations

Recent legislation has shifted the playing field:

• RMD Age Pushed Back: The SECURE 2.0 Act pushed the RMD age to 73 (and eventually 75). This expands the "Valley of Lower Income," giving retirees more years to execute staggered conversions.
• The 2026 Tax Cliff: The historically low tax rates established by the Tax Cuts and Jobs Act of 2017 are scheduled to sunset at the end of 2025. Unless Congress acts, brackets will revert to higher historical norms (e.g., the 24% bracket jumps back to 28%). This makes 2025 a highly strategic year to execute conversions.

Estate Planning Synergy

Beyond your own retirement, Roth conversions dramatically impact the next generation. Under the original SECURE Act, non-spouse heirs must fully drain inherited IRAs within 10 years.

If they inherit a Traditional IRA during their prime earning years (e.g., their 40s or 50s), those forced distributions are taxed at their highest marginal rates. If they inherit a Roth IRA, they still must drain it in 10 years, but every dollar withdrawn is tax-free.

When NOT to Convert

Conversions are not universally beneficial. We generally advise against them if:

1. You have to pay the conversion taxes out of the IRA itself (you should pay the tax with outside cash).
2. The conversion pushes you into a significantly higher bracket or triggers Medicare IRMAA surcharges unnecessarily.
3. You expect to be in a much lower tax bracket later in retirement.
4. You plan to leave the Traditional IRA to charity (charities don't pay income tax on Traditional IRAs).

The WAFS Approach

Roth conversions cannot be calculated on a scratchpad. We use sophisticated tax projection software to pinpoint exactly how much to convert each year—down to the dollar—to fill a tax bracket without spilling over into the next one.

Because our tax team and wealth team sit across the hall from one another, the CPA who signs your return and the CFP who manages your portfolio are executing the exact same playbook. Schedule a wealth planning conversation to see if a 2025 conversion makes sense for your portfolio.