GABE NELSON FINANCIAL, INC.
The Tax Move That Pays You for Decades: Roth Conversions for Solopreneurs
A Roth conversion in the wrong year is just prepaying tax. In the right year, it’s one of the best deals in the tax code. The whole thing is knowing which year you’re in.
By Gabe Nelson, CFP® · Gabe Nelson Financial, Inc. · ~7 min read
There’s a specific year in your future — and it might be this one — where you can move money from “taxed later” to “never taxed again,” at a steep discount. It’s one of the most valuable windows a solopreneur ever gets, and most people walk right past it. It’s called a Roth conversion, and the difference between doing it in the right year and the wrong year can be five, ten, even thirteen cents on every dollar you convert.
I’m Gabe Nelson, a CFP® who works with high-earning solopreneurs nationwide. Conversions are one of the most powerful — and most misunderstood — tools in year-end planning. Here’s how to tell whether this is your window, and how to use it without tripping over the traps.
What a conversion actually does
A Roth conversion moves money from a tax-deferred account — your Solo 401(k) or a traditional IRA — into a Roth. You pay ordinary income tax on the amount you move, this year, at today’s rate. In exchange, that money grows tax-free forever, comes out tax-free in retirement, and never triggers required minimum distributions. In plain terms: you’re volunteering to pay tax now so you never pay it again — not on the contribution, and not on the decades of growth stacked on top of it.
Why timing is the entire game
The whole strategy is rate arbitrage. You want to convert when your tax rate is low, so the tax you pay now is smaller than the tax you’d otherwise pay — on a much larger balance — later. Do it in a high-income year and you’re just prepaying tax at your worst possible rate. Do it in the right low year, and you’ve bought a lifetime of tax-free compounding at a discount.
Consider what that compounding actually means. A dollar converted today doesn’t just avoid tax on that dollar — it avoids tax on everything that dollar becomes. If a converted balance doubles or triples over a couple of decades in the market, every bit of that growth comes out tax-free. You paid tax once, on the seed, and never again on the harvest. That’s why the conversion decision is really a decades-long decision disguised as a one-year move: the rate you lock in this year rides on top of all the growth that follows.
How to spot your window
A low-income year is the window. That might be a sabbatical, a business transition, a slow stretch, a gap between big contracts, or an early semi-retirement year. Any year your income dips below your normal is a candidate.
The richest window of all is the stretch between age 59½ and your first required distributions — those early retirement years when your earned income has stopped but forced income hasn’t started yet. That’s often the cheapest your bracket will ever be again. And if you’re in a high bracket right now? Patience is the move. You wait, and you convert in the dip.
Consider David — 53, a high earner sitting in the top bracket today, planning to slow down at 58. The eager move would be to start converting now. We’re doing the opposite: we’re waiting. When David slows down at 58 and his income drops into the 24% range, we convert then — the same dollars, at roughly thirteen cents less on each one. Across a few hundred thousand dollars of planned conversions, that patience is worth tens of thousands — and it builds his tax-free bucket right when he’s about to want the flexibility most.
The lesson isn’t ‘convert.’ It’s convert in the right year. Knowing which year that is — and how much — is the entire analysis.
How the mechanics actually work
The move itself is simpler than people expect. You tell your custodian how much to move from the traditional account to the Roth; that amount gets added to your taxable income for the year and reported at tax time; you owe ordinary income tax on it. There’s no age limit and no income limit on conversions — anyone with a tax-deferred balance can do one. The complexity isn’t in the transaction. It’s in the decision: how much, in which year, and how it interacts with everything else on your return. That’s the part worth getting right, because unlike most tax moves, a conversion is permanent once the year closes.
Fill the bracket, don’t overflow it
You don’t convert everything at once. A conversion adds to your taxable income for the year, so the precise move is to convert just enough to “fill up” your current bracket without spilling into the next one. If a low year leaves room before the top of the 24% bracket, you convert exactly enough to reach that ceiling — not a dollar more. Overflow into the next bracket and you’ve overpaid on the excess. It’s a scalpel, not a shovel.
The traps most people miss
Three things trip people up. First, a conversion is extra income, so it can raise your Medicare premiums two years later (through IRMAA), affect ACA subsidies, and push other income-based thresholds. None of these are dealbreakers — they’re reasons to model the conversion before you make it. Second, pay the conversion tax from outside the retirement account — from your taxable brokerage — so that 100% of the converted dollars keep compounding tax-free; paying the tax from the IRA itself guts the benefit. Third, once December 31 passes, a conversion can’t be undone. That’s why this is a model-it-with-your-CPA-before-not-after move.
Who should actually be looking at this
Conversions aren’t for everyone, and they’re not an every-year move. The solopreneurs who benefit most share a few traits: a large balance sitting in tax-deferred accounts, some income volatility that produces the occasional low year, and enough runway before retirement for tax-free growth to do its work. If that’s you, the question isn’t whether to convert — it’s which years to convert in, and how much. If you’re in your peak-earning stretch with no dip in sight, the honest answer is often to wait and prepare, so that when a low year does arrive, you’re ready to use it deliberately instead of noticing it in hindsight.
The bigger payoff: three buckets
Most solopreneurs retire with everything in one giant tax-deferred account. Every dollar that comes out is taxed as ordinary income, and required distributions eventually force the timing whether you like it or not. One bucket means no control. Conversions build a second kind of money — tax-free — so that in retirement you have three buckets: tax-deferred, taxable, and tax-free.
Three buckets mean control. Each year in retirement, you pull from whichever keeps your bracket lowest, instead of letting one giant pre-tax account dictate your income and your tax bill for you. That flexibility — built deliberately, in the right low years — is what a Roth conversion is really buying you.
Running your conversion analysis — is this your window, how much fills the bracket, and what it touches downstream — in coordination with your CPA is exactly what a Year-End Tax Strategy Session covers. Book one at StartWithGabe.com, or download the free Scaling Wealth Blueprint to see the whole system.
The best time to start was years ago. The second best time is right now.
Educational only — not personalized tax, legal, or investment advice. Client details are anonymized composites and figures are illustrative; tax deadlines, brackets, and limits change from year to year. Coordinate with your CPA and confirm current rules before acting. Gabe Nelson is an Investment Adviser Representative; advisory services are offered through Gabe Nelson Financial, Inc.