Breaking Down Break-Even: The Real Cost of Roth Conversions

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A client converts $80,000 from a traditional IRA. The tax bill lands. The account balance drops. And the first question out of their mouth is some version of: “How long until I get my money back?”

That question is the Roth conversion break-even point, and it comes up in almost every conversion conversation we hear about from advisors. It sounds like a fair way to measure the decision. It is also, on its own, a misleading way to measure it.

This piece is sharing generally-available knowledge only. Keep in mind that here at Stonewood, we’re not CPAs. We build analysis tools to help advisors evaluate the tax consequences of strategies like Roth conversions. Be sure to work with a qualified tax professional on any specific client situation.

Quick answer: The Roth conversion break-even point is the point at which a converted Roth balance regrows to match what a traditional IRA balance would have been without the conversion. Measured in nominal dollars, it can look discouraging, sometimes not arriving until a client’s late 80s or 90s. Measured in after-tax value, and once IRMAA is added to the picture, the real break-even point is often sooner than it appears.

By the end of this piece, you’ll have a way to explain that gap to a client in plain language, and a sense of where Stonewood’s software fits into that conversation.

Why the Nominal-Dollar Break-Even Question Misleads Clients

A saver who converts $80,000 and pays taxes on it isn’t losing $80,000. They’re losing a claim on money that was never fully theirs to begin with.

Every dollar in a traditional IRA carries an unpaid tax bill. Some of that dollar belongs to the saver. Some of it belongs to the IRS. A $500,000 traditional balance was never a $500,000 asset for the saver, it was a $500,000 asset split between the saver and the government, at whatever rate applies when the money finally comes out.

That’s the part a nominal-dollar break-even calculation leaves out. If a client compares a post-conversion Roth balance to what the traditional balance “would have been” in raw dollars, they’re comparing an after-tax number to a before-tax number. That’s not a fair fight, and it’s the single biggest reason break-even timelines in casual conversation tend to look worse than they actually are.

The correct comparison is after-tax, apples-to-apples: a taxable $100,000 traditional balance against a tax-free $75,000 Roth balance, not a $100,000 Roth balance against a $100,000 traditional balance. Once a client sees the comparison that way, a conversion that “hasn’t broken even” in nominal dollars can already be ahead in after-tax terms. Converting into a higher bracket than a saver currently expects to see later can still make sense over a lifetime, once the math is run this way. That’s a nuance worth walking through with a client rather than assuming it away.

A Better Lens: The Break-Even Tax Rate (BETR)

If nominal dollars are the wrong measuring stick, the better one is the break-even tax rate, sometimes called BETR.

BETR asks a different question. Instead of “when do I get my money back,” it asks: “at what future tax rate would converting and not converting leave a saver in the same after-tax position?” If a saver’s actual future tax rate turns out higher than the BETR, converting wins. If it’s lower, waiting wins.

Vanguard’s research on this approach, led by global head of advice methodology Joel Dickson, shows that BETR accounts for details a simple bracket comparison misses, including whether the conversion tax gets paid from a separate taxable account rather than out of the IRA itself, and how a longer time horizon can lower the BETR further (Vanguard, accessed 2026). Paying the conversion tax from outside the IRA, so the full converted amount keeps compounding tax-free inside the Roth, tends to make BETR the most forgiving of the three lenses.

None of these lenses are wrong. They’re just answering different questions. Nominal break-even asks when the balance looks whole again. After-tax break-even asks when the client is actually ahead. BETR asks what future tax rate would need to be true for the decision to be a wash. A client conversation that only uses one of the three is missing part of the picture.

The Piece Most Break-Even Conversations Skip: Tax Drift and IRMAA Drift

Here’s where most break-even conversations stop short. They treat the decision as a pure income-tax question. For many clients approaching or in retirement, it isn’t.

We think about this in two parts: tax drift and IRMAA drift. Tax drift is the risk that a large single-year conversion pushes a saver into a higher marginal bracket than intended. IRMAA drift is the risk that the same conversion pushes a saver’s modified adjusted gross income (MAGI) over a Medicare IRMAA threshold, adding a Medicare Part B and Part D surcharge on top of the tax bill.

For 2026, the standard Medicare Part B premium is $202.90 a month, with surcharges beginning once MAGI crosses roughly $109,000 for single filers or $218,000 for joint filers, based on income from two years earlier (Centers for Medicare & Medicaid Services, November 2025). At the first surcharge tier, the total Part B premium can rise to about $284.10 a month per person. Part D carries its own surcharge on top of a saver’s regular plan premium (CMS, November 2025).

That two-year lookback matters for break-even math in a way most conversations skip. A conversion that looks efficient on a bracket basis this year can generate an added Medicare premium two years later, which changes the real break-even point even if the tax bracket math alone looked fine.

There’s a second layer worth raising with couples specifically, sometimes called the widow’s penalty. When one spouse passes, the survivor moves from joint IRMAA thresholds to single-filer thresholds, which sit at roughly half the joint amount (CMS, November 2025). Household income may not change much, but the surviving spouse can land in a noticeably higher IRMAA tier the following year, on top of whatever tax bill the remaining traditional balance generates for that spouse or for heirs. Legacy Done Right gives advisors a way to show a couple that combined picture, the surviving spouse’s IRMAA exposure alongside what heirs may actually keep after taxes, while both spouses are still in the room to think it through together.

A Worked Example: Three Ways to Measure the Same Conversion

Consider a hypothetical single saver, age 68, with a $600,000 traditional IRA and no Roth assets yet. This example is for illustration only and doesn’t reflect any specific client, product, or tax outcome.

The saver is considering converting $60,000 a year over several years, in part to reduce the size of required minimum distributions once they begin in the saver’s early 70s (Internal Revenue Service, retirement topics guidance, accessed 2026). A $60,000 conversion this year would push a portion of that income above the first-tier IRMAA threshold for a single filer, adding a Medicare surcharge two years out (CMS, November 2025).

Here’s how the same $60,000 conversion looks through each of the three lenses:

Lens	What it measures	What it tends to show
Nominal break-even	When the Roth balance regrows to match the pre-conversion traditional balance	Can look distant, sometimes not until a client’s late 80s or 90s
After-tax break-even	When the after-tax value of converting overtakes the after-tax value of not converting	Often sooner, since it correctly discounts the traditional balance for its embedded tax bill
Tax drift + IRMAA drift	Adds the short-term Medicare surcharge cost and the long-term IRMAA exposure being avoided	Can shift the picture again, in either direction, once the two-year surcharge is factored in

 

The point isn’t that one number is “the” answer. It’s that a client who only hears the nominal-dollar version is working from an incomplete picture, and a client who hears all three tends to make a more informed decision.

Common Mistakes Advisors See in Break-Even Conversations

A few patterns come up often when break-even gets discussed casually rather than modeled carefully.

• • Comparing nominal dollars instead of after-tax value. This is the single most common error, and it’s usually what makes a conversion look worse than it is.
  • Leaving IRMAA out of the analysis entirely. A conversion that clears the bracket math can still generate a real Medicare premium cost two years later.
  • Treating break-even age as the only factor that matters. Tax diversification, RMD reduction, and legacy goals for heirs can matter to a client even when a strict break-even calculation looks unfavorable.

• Assuming a single flat future tax rate. Future brackets, thresholds, and fees like IRMAA can move independently of each other, and a one-rate assumption tends to oversimplify the decision.
• Ignoring what heirs inherit. Under current rules, many non-spouse beneficiaries must fully distribute an inherited traditional IRA within 10 years of the owner’s death (IRS Publication 590-B, accessed 2026), often during years when the heir is still working and in a higher bracket. That detail belongs in the break-even conversation too, not just the legacy conversation.

Where Stonewood’s Software Fits This Conversation

We built the break-even feature inside Roth Done Right because a one-time bracket comparison wasn’t giving advisors the full picture their clients needed to see.

The software models a Roth conversion scenario over multiple years rather than a single year, and it accounts for both the short-term IRMAA cost of converting and the long-term IRMAA exposure a client may be trying to avoid. Instead of telling a client what to do, it shows a client-facing comparison of doing nothing, a partial conversion, and a more aggressive conversion, side by side, with the after-tax and after-Medicare-premium picture built in.

For couples where the widow’s penalty or heir tax exposure is part of the conversation, Legacy Done Right extends that same analysis to what a surviving spouse or heirs may keep. And for a fast first-meeting snapshot before running the fuller break-even analysis, Total Tax Burden gives a saver a rough sense of their tax picture without requiring a tax return.

Stonewood is not an IMO. We build these tools so advisors at any IMO, working with any carrier, can show a client the full break-even picture rather than the one-line version.

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Frequently Asked Questions

What is a Roth conversion break-even point?

It’s the point at which a converted Roth balance regrows to match what a traditional IRA balance would have been without the conversion. Measured in nominal dollars, it can look distant. Measured in after-tax value, the real break-even point is often sooner, since a traditional balance was never fully after-tax money to begin with.

Why is comparing nominal dollars the wrong way to measure Roth conversion break-even?

A traditional IRA balance carries an unpaid tax bill, so comparing it dollar-for-dollar against a tax-free Roth balance compares an after-tax number to a before-tax one. The more accurate comparison looks at after-tax value: a taxable $100,000 traditional balance against a tax-free $75,000 Roth balance, for example.

What is the break-even tax rate (BETR) approach to Roth conversions?

BETR asks at what future tax rate a saver would end up in the same after-tax position whether or not they converted. If the saver’s actual future rate turns out higher than the BETR, converting tends to come out ahead (Vanguard, accessed 2026).

How does IRMAA affect a Roth conversion’s break-even point?

A conversion that raises MAGI above an IRMAA threshold can add a Medicare Part B and Part D surcharge two years later, due to the program’s two-year lookback. That added cost can shift a conversion’s real break-even point even when the income-tax math alone looks favorable (CMS, November 2025).

Does the widow’s penalty change when a Roth conversion breaks even?

It can. When one spouse passes, the survivor moves to single-filer IRMAA thresholds, which sit at roughly half the joint amount. That can raise the surviving spouse’s Medicare premiums the following year, on top of any tax bill the remaining traditional balance generates (CMS, November 2025).

Did OBBBA make the Roth conversion break-even question less urgent?

Not in our view. The One Big Beautiful Bill Act extended lower tax rates, but “extended” only means Congress doesn’t have to vote to keep them, not that a future Congress can’t raise them. Many analysts still expect rates to trend toward pre-TCJA levels within the next decade, which keeps the break-even conversation relevant now rather than later.

What software models tax drift and IRMAA drift together for a break-even conversation?

Roth Done Right models a multi-year Roth conversion scenario alongside both the short-term and long-term IRMAA cost of converting, producing a client-facing comparison rather than a back-office worksheet.

See the Break-Even Analysis in a Real Scenario

The break-even conversation tends to land better with a client when they can see their own numbers rather than a general explanation. Request a sample report built on Roth Done Right, or schedule a demo to watch the tax-drift and IRMAA-drift analysis run on a scenario close to one of your own clients.