Roth Conversions After Selling a Business: Timing Comes First

Place the expected sale, owner compensation, seller-note payments, pensions, Social Security, and required withdrawals on a year-by-year calendar. Separate facts from estimates. The calendar shows which years deserve a detailed projection; it does not decide the conversion amount.

A Roth conversion generally includes previously untaxed amounts in income. After-tax basis can affect the taxable amount, so a conversion amount and its taxable amount are not always identical. Ask the tax preparer to account for all relevant IRAs and basis records.

Model no conversion, a modest conversion, and a larger conversion. Use the same spending and investment assumptions across all three. Compare tax due, cash available to pay it, future withdrawals, and how much flexibility remains if life changes.

Illustration: a $100,000 conversion taxed entirely at an assumed 24% incremental rate would add $24,000 of federal tax before other effects. Actual tax can span brackets and interact with other income. A one-line multiplication is a sensitivity check, not a tax-return projection.

Medicare income-related surcharges generally rely on income from two years earlier. A 2026 conversion would ordinarily affect 2028 premiums for someone enrolled then. The 2026 threshold is a reference, not a forecast of the 2028 threshold.

For a couple, consider each spouse’s Medicare enrollment and the relevant premium year. If income later falls after an eligible life-changing event, review Social Security’s redetermination process; do not assume every one-time income event qualifies.

Before acting, ask what happens if the deal closes in a different tax year, the earnout arrives early, spending rises, or the tax payment must come from the retirement account. A sound comparison should explain why one scenario is preferable and the facts that could reverse that conclusion.

Start with the Roth Conversion and IRMAA Calculator, then take its assumptions to your CPA and financial advisor for a complete review.