Roth Conversions: The Tax Traps High-Income Bay Area Households Miss

Published September 24, 2026 · By Shane Weng, BookBright Solutions LLC

The pitch for a Roth conversion is easy to understand: move money out of a Traditional IRA or old 401(k), pay ordinary income tax on it today, and it grows tax-free forever after that — no future tax on withdrawals, no Required Minimum Distributions on the original owner's Roth. What the pitch leaves out is that the tax bill from a poorly sized conversion doesn't stop at the conversion itself. It can ripple into your Medicare premiums two years later, phase you out of credits you were counting on, and cost more than the long-term benefit was worth.

The part everyone gets right

A conversion adds the converted amount to your taxable income for the year, taxed at ordinary rates — the same bracket your salary and RSU income land in. That part is well understood. Where households get into trouble is treating that as the whole calculation, when it's really just the entry point to several other thresholds sitting downstream of it.

Bracket creep is the obvious risk — but not the only one

Converting $150,000 doesn't cost the same in every year. Do it in a year that already includes a large RSU vest, a bonus, or a spouse's liquidity event, and the conversion gets taxed on top of income that's already pushed you toward the top of your bracket — at your highest marginal rate, not some blended average. Do it in a genuinely lower-income year — between jobs, a sabbatical, an early-retirement gap before Social Security starts — and the same dollar amount can land at a meaningfully lower rate. The size of the conversion matters less than which year you put it in.

The trap most people never see coming: IRMAA

If you're on Medicare or approaching it, this is the one that catches people off guard. Medicare Part B and Part D premiums are based on your Modified Adjusted Gross Income from two years earlier — so a large conversion this year doesn't show up as a Medicare surcharge until two years from now, often long after the decision has been forgotten. Cross an IRMAA income tier and both spouses' premiums can jump by hundreds of dollars a month, for a full year, based on income that's already been spent.

Other thresholds a conversion can quietly cross

• Net Investment Income Tax (NIIT). Pushing Modified AGI over the threshold can expose investment income that would otherwise have escaped the extra 3.8% tax.
• ACA subsidies. For anyone on a marketplace health plan, a large conversion can reduce or eliminate a premium tax credit for that year.
• Other income-based phaseouts — certain credits and deductions are keyed off MAGI, and a conversion is one of the few income events you actually control the timing of.

Paying the tax from the wrong place

The most common execution mistake: withholding the conversion tax from the IRA itself rather than paying it from outside savings. Every dollar withheld that way is a dollar that never makes it into the Roth to grow tax-free — and if you're under 59½, it can also trigger a 10% early withdrawal penalty on top of everything else. The conversion only works as intended when the tax bill is paid separately, in cash, from outside the account.

Why "should I convert" is the wrong first question

The better questions are how much to convert this year, whether to spread it across several years instead of doing it all at once, and which of your specific thresholds — bracket edges, IRMAA tiers, NIIT, ACA subsidies — sit closest to your current income. None of that can be answered from a rule of thumb tied to account size; it depends on your full income picture for the year, including RSU vesting schedules, business income, and anything else already on your return.

Bottom line

Done at the right size, in the right year, a Roth conversion can be one of the more durable moves available to a high-income household. Done by converting a round number because it felt productive, it can hand back more in surcharges and lost credits than it saves. The difference between the two is entirely in the planning that happens before you convert — not after.