Roth conversions used to be something people considered late in life, maybe after retiring or in a low-income year. But more high-income self-employed folks are realizing they don’t need to wait. With the right timing and strategy, converting traditional IRA or Solo 401(k) assets to Roth can be a smart long-term play even when you’re in your peak earning years.

Let’s take a closer look at why.

The Appeal of a Roth

Once your money’s in a Roth IRA or Roth Solo 401(k), it grows tax-free, and qualified withdrawals in retirement are completely tax-free too. That means no required minimum distributions (RMDs), no worrying about future tax brackets, and more flexibility in how you draw down assets.

That trade-off, paying taxes now for tax-free growth later, can make sense even for high earners, depending on your long-term plans.

Why High Earners Shouldn’t Dismiss It

Conventional wisdom says high-income years are the worst time for Roth conversions because you’ll pay more taxes up front. But that assumes your income will drop later. For many entrepreneurs, that isn’t always true.

• You might keep running your business into your 60s.
• Your portfolio could throw off large capital gains.
• Future tax rates might rise (not a wild guess given recent budget discussions).

A partial Roth conversion now could save more taxes over decades than it costs this year.

The IRS outlines how Roth conversions work here. 

How to Be Strategic

A full conversion in one year could spike your tax bill. But if you do it gradually, in chunks, you stay in a manageable tax bracket.

Some smart strategies include:

• Convert during a dip. If markets pull back, converting assets at a lower value means a lower tax hit.
• Bracket management. Stay just under the threshold of your current tax bracket by converting only part of your IRA.
• Separate accounts. Keeping pre-tax and Roth assets in separate accounts simplifies tracking and future planning.

Things to Watch Out For

A few caveats:

• You can’t undo a Roth conversion. Once it’s done, it’s done.
• The conversion amount counts as taxable income for the year.
• It could affect your eligibility for certain tax credits or deductions.

Always model it out, ideally with your CPA or financial planner, before making a move.

Wrapping It Up

Strategic Roth conversions aren’t just for people in retirement. If you’re self-employed, earning well, and planning for a long financial future, it could be one of the most valuable tools you have.

Do the math, know the rules, and think long term. Tax-free compounding is worth the effort.