Why Converting Your Traditional IRA to Roth Might Feel Like Paying Off Your Home Mortgage
Episode 24
Why Converting Your Traditional IRA to Roth Might Feel Like Paying Off Your Home Mortgage
Published on February 25th, 2026
Episode 24 of Retirement Tax Matters was inspired by Dave Ramsey’s Debt-Free Scream and the parallels we see when high-net-worth retirees settle their tax liability with the IRS. Just as many homeowners find the emotional benefit of a paid-off mortgage more rewarding than the mathematical games we can all be tempted to play with debt leverage, we believe a similar psychological victory exists for those who execute strategic Roth conversions. While traditional financial calculators might suggest that keeping a Traditional IRA is a wash or may even come out slightly ahead, this episode focuses on the control and simplicity retirees gain by settling the tax liability they know will eventually be due. By choosing to execute a Roth conversion now, you ensure a larger portion of your retirement savings can grow tax-free for the long term. For our $2M–$8M niche, knowing that an account will grow tax-free for your lifetime, your spouse’s life, and an additional 10 years for your beneficiaries is often the primary driver for tax-return-driven financial planning. Ultimately, we find that just as people rarely regret paying off their home, retirees rarely regret the peace of mind that comes from settling their tax debt and ensuring their family remains in control.
Key Tax Planning Questions
Question 1: Should I prioritize peace of mind over mathematical optimization?
As someone who graduated college with an engineering degree, I can appreciate the allure of optimizing every financial equation to ensure you end up with the most money possible at the end of your life. I’ve found that many high-net-worth retirees are capable of managing significant financial complexity and often take it on even if the projected financial benefit is minimal. However, as I have practiced as a CFP® professional over the years, I have realized that prioritizing peace of mind, simplicity, and happiness is just as important to a successful financial plan as the display of a calculator.
The inspiration for this week’s episode was the Debt-Free Scream popularized by Dave Ramsey. Growing up in Tennessee in the 1990s, I became very familiar with his radio show and his relentless pursuit of helping people navigate their way out of consumer debt. While there may be a technical or academic arguments where I might answer a little differently, the longer I practice the more I realize that moving a client from their current situation to a better, happier one isn't driven by a calculator.
One of Dave Ramsey’s primary takes is that everyone should buy a home they can afford and pay it off within 15 years, as a paid-off house is a true status symbol of financial peace. Since 2020, that advice has been challenged as many homeowners secured fixed 30-year mortgages below 3%, leading many to ask why they should pay down low-interest debt when they could earn a higher yield when savings accounts were paying a higher rate.
While the academic argument for debt leveraging is real, I believe the psychological argument for ownership is more compelling. In a world filled with complex financial products and the pressure of keeping up with others, it is easy to start down a path of optimization only to find that the extra savings were eventually diverted toward lifestyle creep or unnecessary expenses. For most of our clients in the $2M–$8M niche, the true goals are to be prudent stewards, maintain simplicity for beneficiaries, and ensure their families are protected.
In an information-heavy environment, there will always be an allure of better returns through increased complexity. I would encourage high-net-worth retirees to focus on the values that bring them the most peace of mind. Always be optimizing for your values, not just more dollars and cents in a bank account at the end of your life
Question 2: What are the psychological benefits of a Roth Conversion?
Working with retirees, I have been fortunate to witness many clients reach the major milestone of paying off their primary mortgage. Especially for this generation, a paid-off home is a key ingredient for achieving true peace of mind and readiness for retirement. I’ve never had a client regret the decision or express a desire to add back the financial benefits of mortgage ownership. Once you cross that bridge into being debt-free, it’s not very appealing to go back.
In my practice, helping clients execute Roth conversions feels very similar to that mortgage payoff. While there is often a period of reservation while determining the exact amount to convert, the feeling once the transaction is complete is one of relief and excitement. Clients are thrilled to have a portion of their retirement savings that is shielded from future taxation. While the mathematical merits for high-net-worth retirees are significant, the psychological benefits are what, I think, keep retirees coming back for more.
Greater Control: Once the Roth Conversion associated taxes are paid, those funds are positioned to grow tax-free for the remainder of your life, your spouse’s life, and an additional ten years for most beneficiaries. This provides a level of insulation from future legislative shifts and tax rate debates in Congress. Having a bucket of money that you own entirely that doesn’t have the governments hand in it simplifies your financial life and makes it easier for your estate planning.
Greater Simplicity: A Roth IRA does not have Required Minimum Distributions (RMDs). Generally speaking, the IRS is indifferent to when you access these funds because they do not generate future tax revenue. This allows you to take only the money you actually need, rather than having the IRS dictate your annual income. Furthermore, I haven’t met a beneficiary yet who was upset to inherit a Roth IRA. While inheriting a Traditional IRA comes with complex rules and tax planning for your children, a Roth inheritance keeps things simple and maximizes the legacy you leave behind.Ultimately, we find that when a client’s goal is to simplify their life and protect their heirs, the Roth IRA wins hands down.
Question 3: I’m a high-net-worth retiree with a $4 million IRA, but since we don't live a lavish lifestyle, our household income is pretty low and puts us in the 22% tax bracket. If I do a Roth conversion now, I have to pay taxes upfront, which leaves me with less principal to grow over time. Since the math seems like a wash compared to just paying taxes as I go, am I missing something?
There is a spectrum of right answers here, and I understand the hesitation. Early in my career, when I was probably more engineer than financial planner, I was queasy whenever someone mentioned a Roth conversion in the 22% or 24% marginal brackets if their income was expected to remain stable through retirement. The logic of letting your principal stay intact to grow tax-deferred is a great strategy to minimizing taxes. From a pure calculator perspective, you aren't wrong to question if a conversion is necessary.
However, the longer I practice, the more I realize that a calculator cannot factor in the psychological benefits of this process. For a high-net-worth married couple, I would explore Roth conversions up to the top of the 24% bracket (while carefully monitoring for Medicare IRMAA thresholds) for several reasons that live outside the calculator:
Neutralizing the Noise: Many retirees underestimate how much time they spend thinking about the national debt, the latest presidential tax plan, or if tax rates will go up in the future. Doing a Roth conversion helps neutralize this. Once you pay the tax, you don’t have to worry about that money being taxed again—all the growth is in your pocket. While you do have a smaller principal amount initially, if there is longevity in your family, don’t underestimate the impact of compound interest over you or your spouse’s long life.
The Surviving Spouse Reality: If you’re going to be in the 22% bracket for a long time, consider paying 2% more now to hit the top of the 24% bracket. While it’s a bit more tax today, your portfolio becomes much simpler for a surviving spouse. When one spouse passes, tax brackets drop to single rates, and they might be taxed at 24% or higher on those same withdrawals anyway.
Beneficiary Simplicity: If your goal is to keep things simple for your children, the Roth IRA wins hands down. I haven’t met a beneficiary yet who was upset they inherited a Roth IRA. Inheriting a Traditional IRA comes with more rules and complex tax planning for your kids.
I recommend adopting a tax-return-driven planning approach. By performing annual income projections each fall, you can get an educated view of exactly where your income will land on December 31st. This allows you to decide if you want to pay a little extra tax now for the long game of more control and more simplicity. Your specific tax return may reveal reasons to stay the course, but the value of the exercise is moving from a place of guessing to a place of execution.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam Reed, and this is Garrett Crawford, our resident CFP® professional. How are we feeling this morning, Garrett?
Garrett: We're in February, and the sickness stuff is going around. I was not immune. Usually, it's my kids, but this time I was the weak link. It was just a sniffle and a little bit of a sore throat, but I got to rest for the past couple of days. I got a full night of sleep last night and I'm ready to go.
Adam: I'll probably have to start my own parenting podcast because I feel like my kids get sick a lot. My six-month-old has a cold right now. I actually don't mind being sick. It's kind of nice to just lay back and relax for a day or two while my wife waits on me and the kids give me some space. But seeing a six-month-old sick is the saddest thing. They don't know what's going on. They're wondering why their nose is running and why they're coughing. He's pretty pitiful right now.
Garrett: I remember those days. Those are hard.
Adam: He's on the mend, though. Well, I think we have a cool topic for today. We're going to link over to a popular podcast. If you watch financial podcasts, you have probably heard of Dave Ramsey. If you haven't come across him, your algorithm is crazy, and I'd love to learn what's going on behind the scenes with it. Dave Ramsey talks a lot about his debt-free scream. People call in after paying off all their debt or their house, and they just get to yell. It is this massive release of energy and emotion. We are going to piggyback off that. Dave loves being debt-free, and we talk a lot about Roth conversion planning. There is a strong parallel to that in our world. Tell me a little bit about the tax-free scream when we are talking specifically about Roth conversions.
Garrett: It is funny you mention that because lately on Facebook and Instagram, I am getting a lot of Dave Ramsey content. While I probably wouldn't agree with him on every single thing, we had to do a podcast topic about this. I was thinking about it this morning. We are in an AI revolution where knowledge is becoming a commodity. If you want to know how to do a Roth conversion, you can just hop on ChatGPT or Google Gemini, and it will give you twenty steps to do it. That will be an interesting space to navigate as a financial planner over the coming decades. My hot take is that people will always want trusted advice from real people. To give Dave Ramsey credit, I think he is a master at psychology and giving people advice. There is a lot of knowledge out there, but he is able to get people to move from point A to point B, and sometimes that is not purely math-motivated.
Our industry is often too math-motivated. Coming into the industry thirteen years ago with an engineering degree and an analytical mindset, I was definitely math-motivated. As I have done this longer, I have seen that life doesn't happen inside of a calculator. That realization was one of the impetuses for starting Retirement Tax Matters and helping high-net-worth retirees, typically with two to eight million dollars, with their tax planning.
A few years ago, I started thinking about how Roth conversions are very similar to the idea of paying off your house. In 2020, when COVID hit, one of the best things that came out of it was that interest rates dropped to historically low levels. I refinanced my house twice during that time and now have a 30-year fixed mortgage significantly below 3%, which is awesome. I know people who bought their first house years ago with 11% or 12% mortgage rates can't even imagine that, and they might laugh at people complaining about 6% or 7% today. It is just a hard environment for people graduating college and looking for a house right now.
But for those who secured a sub-3% mortgage rate, we start getting cute with the financial math. We think, if I have a mortgage at 2.8% and my savings account earns 4%, why would I make prepayments on my mortgage when I can leverage a higher rate of return elsewhere? Dave Ramsey would say, "Quit playing with the numbers. Pay your house off, move on with your life, and start making better financial decisions." He is a master at getting people to where they need to be—debt-free—so they can think clearer and have a simpler life.
We can easily get trapped into thinking that everything is about leverage or making the absolute most money at the end of our life. We forget about the return on hassle that we talk about so often. How much effort are you putting in just to squeak out an extra 0.1% rate of return on your savings or CD account?
That is a long introduction to this idea of Roth conversions. I don't really see this talked about anywhere, but people get so excited for the debt-free scream. They go from being in debt, working multiple jobs, and living below their means through all of Dave Ramsey's baby steps, to finally having all their debts paid off. It is a great entry point into having a better relationship with money.
Pivoting to today's topic, there is a strong correlation with Roth conversions. That money in your 401k that has grown to one, two, or three million dollars? You don't actually own all of it. You have a debt to the IRS. Depending on your situation, 20%, 25%, or 30% of that 401k is theirs.
Early in my journey as a financial planner, I searched everywhere on the internet for the right answer regarding when people should do Roth conversions. At what tax rate does it make sense? 22%, 24%, 25%? Once you get into the 30% brackets, should you still consider them? You often get very arbitrary answers. There are pro-traditional IRA people out there whom I really respect, and they make great arguments for keeping traditional IRA money.
However, working with clients over the past few years has brought me to a new theory. It is just like people who pay off their home and become debt-free. I have never had somebody come into my office and say, "Man, I wish I hadn't paid off my house." Usually, they are thrilled that they don't owe anything to anybody and that they fully own their home. There is a massive psychological benefit to that.
I see the exact same thing with Roth conversions. People come in, and while they usually can't convert it all in one year, they begin the pilgrimage of taking money from a traditional IRA—where it grows with a looming tax liability—and paying the taxes on it. Once it's in a Roth, they feel more in control. Their life is simpler. They love the idea that for the rest of their life, it will grow tax-free. Then, it will pass to their beneficiaries for an additional ten years tax-free. I think Roth conversions offer a psychological benefit identical to paying off your house.
Adam: To look a little closer at why we say that, I have heard you tell clients that a traditional IRA is like a partnership with the IRS. As the money grows, not all of it is ours; we are essentially profit-sharing with them. Help me understand what that looks like in a tangible example, maybe a five million dollar portfolio. How do you think through keeping that in a traditional IRA versus moving it to a Roth IRA?
Garrett: Again, not all of that five million dollars is yours. You are going to have required minimum distributions based on the balance of that five million dollar IRA, and you will be forced to take those distributions whether you like it or not.
As much as I love Roth conversions, if traditional IRAs are all you have, it may not be as advantageous for some people. But from a math perspective, a home run situation for a Roth conversion is when someone experiences a precipitous drop in income for a little while. Maybe they made gobs of money while working, but they retire and decide to delay Social Security for both spouses until age 70. Their income drops dramatically, placing them in a much lower tax bracket than they will be in the future once RMDs kick in. If someone drops into a 12% tax bracket and knows the 32% bracket is staring them in the face down the road, it doesn't take a rocket scientist to figure out they should be doing significant Roth conversions to optimize that window.
However, for a lot of high-net-worth retirees with large IRA balances, the situation isn't usually that simple. It is often harder because they sit in the 22% or 24% tax bracket. Just because you have a high net worth doesn't mean you have a high income; many of our clients live on much less than they could. So you end up in this murky middle. If you convert more of your IRA, you might trickle into the 32% tax bracket, leaving you wondering why you would do that.
How should you evaluate a Roth conversion in that scenario? We can't project exactly what your life will look like, but what if the final numbers were about the same whether you kept it in the traditional IRA or converted it to the Roth? I would argue that the person who converted to the Roth IRA had a happier journey along the way. They didn't have to stress watching Congress meet about taxes or worry about the national debt. Their journey was easier, and they felt more in control.
Now, what if not converting left you with $150,000 or $300,000 more at the end of your life? What if the Roth conversion route left you with a little bit less money overall, but your life was simpler, the journey felt better, and your beneficiaries received an additional ten-year tax-free growth window without having to take RMDs? For the beneficiaries, that is a much better experience.
My point is that it is not purely a calculator question. Retirees would be wise to consider the psychological benefits of a Roth conversion. If you are stuck on the fence about it, just remember the mortgage analogy. People who pay off their house usually don't regret it. If you utilize tax-return-driven financial planning—where you understand in the summer where your income might end up in December—you can feel really confident about the amount you want to convert. If you have a twenty-year timeframe ahead of you, not only can that process be fun, but I think you will find yourself in a much better position down the road.
Adam: To put a bow on it, the 0%, 10%, and 12% tax brackets feel like a no-brainer. Unless there is a very specific situation, the 32% bracket and up requires a very tactical reason, like a beneficiary being in a high tax bracket as well.
But that 22% to 24% bracket is the funny one. Many people would say it is a wash and tell you to just leave the money to grow. What we are saying is that, generally speaking—and without making specific recommendations—we would lean more into Roth conversions because of the psychological benefits. We have witnessed that tax-free scream. It is an awesome feeling for clients to realize their money just grows, and when they take it out, they don't have to discuss withholding 12% or 22%. It is just their money. There is a profound peace in knowing, "This is mine."
Part of it requires delayed gratification. It hurts in the moment when you write that big check to the IRS or see your account balance drop. But when you look back, it feels great. We had clients do some large conversions in 2019 and 2020. At the time it hurt, but looking back now, the markets have grown so much since then.
Garrett: We definitely underestimate the kind of growth that can happen with the markets simply because compound interest is crazy. You look at a three to five million dollar IRA and think that is more money than you have ever had, but the market consistently performs better than people think.
We are probably due for a bear market, but this conversation shouldn't be fear-motivated. You shouldn't walk into a financial planner's office and be told you need to do a Roth conversion just because the economy might tank. There is a lot of that out there, which is why I pitch tax-return-driven financial planning. If a planner is just guessing your income is going to be $250,000 and suggests a random $60,000 conversion on a whim, it might not be the end of the world. But it is a totally different story when someone reviews your tax return and asks precise questions about your expected income for the year. That approach is knowledge-based, not fear-based.
Dave Ramsey is onto something with paying off the mortgage to simplify your life, and I think we are onto something too. Roth conversions bring a greater peace of mind to a lot of people, especially the high-net-worth crowd.
Adam: Absolutely. You made me think about the right time to do Roth conversions. Since we are due for a bear market, maybe we should do an upcoming episode on timing. If you see markets drop throughout the year and really want to maximize this strategy, we can discuss when the best time to execute a conversion is.
Garrett: Sure.
Adam: Good content today. Thank you guys for joining us this morning. We are passionate about Roth conversions and tax-return-driven financial planning. We want to help ease that feeling of the IRS being your biggest beneficiary in retirement—that feeling that even after you pass away, they still have their hand in the cookie jar. We want to help people minimize that feeling and serve not only their own retirement but the next generation as well.
Check us out on YouTube, Spotify, and Apple. Like, subscribe, and follow. Also, check out the year-end tax planning checklist. It is a free resource available on our website and linked in the description below. It covers all the things we are thinking through with our own clients. If you are a DIY investor who likes handling this on your own, go check it out. See how we process these decisions, and then give us some feedback. Tell us if you like it, or if there is something we haven't thought about. We would love to engage with you and build a library of educational tools for those interested in tax-return-driven financial planning.
Garrett: That's the goal.
Adam: That is the goal! We are building the Library of Alexandria for tax-return-driven financial planning here. We appreciate you guys joining us. I think we are going to go take some cold meds, have a cup of coffee, and get to work. We appreciate you. This is Retirement Tax Matters. Hope you have a great day!