Last Updated: April 2026
The Roth IRA conversion is one of the most powerful retirement tax planning tools — converting pre-tax savings to after-tax Roth funds that grow and withdraw tax-free forever. But the state income tax dimension of Roth conversions is often overlooked. The difference between completing a conversion as a California resident vs. a Florida resident can be $13,300 per $100,000 converted — a significant optimization opportunity for those planning a state change.
A Roth conversion is straightforward federally:
The converted amount (minus any non-deductible basis tracked on Form 8606) is added to your ordinary income in the year of conversion. If you convert $100,000 from a Traditional IRA to a Roth IRA, you add $100,000 to that year's taxable income. At a 24% federal bracket, that is $24,000 in federal income tax. State income tax is additional.
Roth conversions increase your Adjusted Gross Income (AGI), which affects: ACA marketplace subsidies (conversions above certain income levels phase out the Premium Tax Credit), Medicare IRMAA surcharges on Part B and Part D premiums (high-income retirees pay more), the Net Investment Income Tax (3.8% on investment income if MAGI exceeds $200K single), and phase-outs of other deductions/credits. Plan conversions carefully around these thresholds.
The best years to convert are: low-income years (retirement gap before Social Security/RMDs begin), years you are in a lower bracket than expected in future years, and years when you live in a low-tax or no-tax state. The worst year to convert: a high-income year in a high-tax state when you are near the top federal bracket and maximum state rate.
State tax treatment of Roth IRA conversions follows the state's treatment of IRA/retirement income:
| State | Top Rate on Conversion | Tax on $100K Conversion |
|---|---|---|
| California | 13.3% | $9,300–$13,300 depending on bracket |
| Hawaii | 11% | ~$9,000–$11,000 |
| New York | 10.9% | ~$9,000–$10,900 |
| Oregon | 9.9% (+ Portland metro) | ~$8,500–$13,900 |
| Minnesota | 9.85% | ~$8,000–$9,850 |
| New Jersey | up to 10.75% | ~$6,000–$10,750 (depending on total income) |
| Vermont | 8.75% | ~$6,500–$8,750 |
These states exempt IRA distributions or conversions from state income tax:
The most powerful Roth conversion strategy for high-tax-state residents with large pre-tax IRAs: (1) Retire or semi-retire at a point when ordinary income drops; (2) Change domicile to Florida, Texas, or Nevada; (3) Complete Roth conversions in the no-tax state. The state tax saving on a $500,000 conversion: California saves $50,000–$66,500; New York saves $40,000–$54,500. This is a strategy that requires careful execution of genuine domicile change (see state residency guides for California and New York).
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Roth conversion optimization requires careful income projection, bracket analysis, and state residency planning. TaxHub connects you with CPAs who specialise in retirement tax planning.
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US expats with Traditional IRA balances face special considerations for Roth conversions — treaty interaction, FEIE, and state residency. Greenback specialises in US expat retirement tax.
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Roth Conversion Help for US Expats →Yes — if you are genuinely domiciled in Florida on the date of the Roth conversion, Florida applies 0% state income tax. California cannot tax a Roth conversion income from a period when you were a Florida resident (unlike RSU/deferred compensation income from employment, which California allocates to the period you worked in CA). IRA distribution income is generally sourced to the state of residence at the time of distribution — not to where you worked when you earned the money. This makes Roth conversions an ideal post-departure tax planning strategy. Ensure your California departure is genuine and documented before the conversion.
Illinois generally exempts retirement income — including pension, 401(k), and IRA distributions — from Illinois income tax. The application to Roth conversions specifically depends on how the conversion is characterized under Illinois law (as a distribution vs. a conversion). Many Illinois tax practitioners take the position that Roth conversions of IRA funds are exempt from Illinois income tax under the retirement income exemption. Consult a licensed Illinois CPA for confirmation specific to your situation, as this is a nuanced area.
The optimal conversion year typically has: (1) Low other income — before RMDs begin, before Social Security begins, or in a low-income year; (2) You are in a lower federal bracket than you expect in future years; (3) You live in a no-tax or low-tax state; (4) Markets have declined (convert at lower values — lower tax on the same number of shares); (5) Tax rates are expected to rise (current federal rates are relatively low historically — the TCJA rates expire after 2025 unless extended). Many retirees target the years between retirement and age 73 (when RMDs begin) for Roth conversion 'filling' — converting enough to use up low brackets each year.