Roth IRA Conversions Surge; Evaluate BETR Before Converting (IV/AXIS)

Roth IRA conversions are rising as Gen X nears retirement, with Q2 2024 conversions up 46% year-over-year (Fidelity). The strategy shifts pre-tax Traditional IRA/401(k) to tax-free Roth, paying ordinary income tax in the conversion year to realize tax-free growth and withdrawals, with no RMDs and tax-free transfers to heirs after five years. However, financial advisers caution a case-by-case analysis is critical. The Break-Even Tax Rate (BETR) helps compare upfront conversion taxes with potential growth forgone. Example: A 35% taxpayer with $100K in a Traditional IRA expecting 24% in retirement finds the BETR is 23.3%, making conversion beneficial despite a lower expected tax rate. Other factors include current vs future marginal tax brackets, sources of retirement income (pensions, Social Security), and spending and legacy goals, including the tax implications of leaving IRAs to heirs.