Feb 8, 2026
Most investors approach Roth conversions with a simple question: Will my future tax bracket be higher than my current one?
On paper, that seems like the most important question. A Roth conversion means taking a tax hit today to avoid one later, so if you expect to be in a lower tax bracket in retirement, the strategy is less appealing. If pensions and required minimum distributions are likely to push you into a high tax bracket in retirement, the conversion makes much more sense.
Advertisement
However, new analysis from Vanguard suggests that this approach is incomplete (1). It doesn’t consider several other factors that should determine whether a Roth conversion is a good idea for your specific situation.
To solve this, the financial giant offers a more precise model to evaluate Roth conversions: the breakeven tax rate, or BETR. Here’s a closer look at whether this BETR approach could help you make the right move.
BETR approach
According to Vanguard, the BETR is the future tax rate at which it makes no difference whether you convert or not. In other words, it is the tax rate where the outcome is the same either way.
This breakeven rate is calculated based on your assumptions about portfolio growth. For example, if you assume the assets in a traditional IRA will grow at 6% a year, any taxes you pay today represent money that no longer gets the chance to compound at that rate over time.
By accounting for this opportunity cost, BETR offers the precise tax rate at which a conversion neither helps nor hurts you. If your future tax rate ends up higher than the BETR, a Roth conversion saves money. If it’s below, vice versa.
Here’s an example that helps bring this to life:
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Jill, a high-income investor
Vanguard uses the case of Jill, a high-income investor with $100,000 in a traditional IRA. She expects the account to triple to $300,000 over 20 years. Her current marginal tax bracket is 35%, and she expects it to fall to 24% in retirement.
Using the traditional approach, a Roth conversion looks attractive. After all, her future tax rate is lower than her current one.
The BETR calculator lays out two possible scenarios to dig deeper:
Advertisement
Non-conversion: Jill leaves the money in her traditional IRA, allowing it to grow to $300,000. When she withdraws the funds in retirement, she pays a 24% tax, or $72,000. Her after-tax balance is $228,000.
Conversion: Jill converts the $100,000 to a Roth IRA and pays a 35% tax, or $35,000. Vanguard assumes this tax bill is paid in cash and that the cash would have doubled in 20 years if left invested. That lost growth, roughly $70,000, has to be subtracted from the Roth’s final value. The result is an after-tax balance of $230,000.
Vanguard calculates that Jill’s BETR is 23.3%. Since her expected retirement tax rate is slightly higher than at 24%, the Roth conversion does make sense, but only marginally. The difference between converting and not converting is ust $2,000.
If this math feels complex, the good news is that Vanguard offers an online calculator that can help you estimate your own breakeven tax rate (2).
The bottom line
Vanguard’s BETR model offers a targeted way to evaluate Roth conversions. Instead of relying on simple bracket comparisons or napkin math, the approach factors in opportunity cost, portfolio growth and how taxes are paid to show whether a conversion is likely to help or hurt over the long term.
It is also wise to work with a tax or financial professional before making a move. Roth conversions are often, but not always, a good idea. The key is digging deeper before committing to what can be an expensive decision.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
