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If you have spent any time researching Roth conversions, you have probably seen the same type of analysis repeated over and over. A financial planner or software program runs a projection of your account balances growing at a steady rate, shows you what your taxes might look like with and without conversions, and concludes that converting makes sense. Or maybe it does not. Either way, the analysis tends to feel clean and confident.

The problem is that this approach is missing something important. And if you are making a major decision about how to handle potentially millions of dollars in pre-tax retirement savings, that missing piece matters a great deal.

This article is going to walk you through a more realistic way to think about Roth conversion planning, one that accounts for how markets actually behave rather than how we wish they would behave. The takeaway might surprise you.

As always, this is not personal financial, tax, or investment advice. The goal is to give you a better framework so you can have more informed conversations with your financial planner.

The Problem With Standard Roth Conversion Software

When most financial planning software models a Roth conversion strategy, it projects your account balances growing at a fixed annual rate, something like 6% or 7% per year, year after year, in a perfectly straight line. It then calculates your projected tax liability under a conversion scenario versus a no-conversion scenario and shows you the difference in lifetime taxes paid.

This type of analysis is a useful starting point. But it has a fundamental flaw: markets do not work that way. Your account does not grow by a steady percentage every single year. There are good years and bad years. There are stretches of strong returns followed by significant pullbacks. Anyone who has been invested for a decade or more knows this firsthand.

The consequence of using a linear return assumption in Roth conversion modeling is that it tends to overstate how much money you will have in your pre-tax accounts over time, which in turn overstates your future Required Minimum Distribution obligations, which in turn can make conversions appear more valuable than they actually are in certain scenarios. It can also lead you to pay more in taxes today than you truly need to.

A more accurate approach is to model your Roth conversion strategy using a realistic sequence of returns, meaning a projection that includes some negative years, because that is what real investing looks like.

Meet Bill: A Case Study in Realistic Roth Conversion Planning

To illustrate this, consider a client scenario. Bill is 50 years old and wants to retire at 55. He has a net worth of $5 million, structured as follows:

• $4 million in a traditional IRA (pre-tax)
• $500,000 in a taxable brokerage account
• Real estate holdings (not the focus of this analysis)

His retirement spending goals are straightforward. He wants to live on approximately $10,000 per month, take one trip per year with a $5,000 travel budget, and cover out of pocket medical expenses of $3,000 per year on top of his monthly health insurance premium prior to Medicare eligibility. In total, his retirement spending picture is manageable relative to his asset base, assuming reasonable investment growth going forward.

The key question is not whether Bill can afford to retire. He can. The question is how he should think about Roth conversions between now and age 70 or beyond, and whether the standard software projection is actually giving him an accurate picture of his options.

Linear Returns vs. Realistic Return Sequences: Why It Changes Everything

Here is where the analysis gets interesting. When you run Bill's plan using a standard linear return assumption, something predictable happens. His $4.5 million in investable assets grows steadily in the background. Even as he draws income and makes large Roth conversions throughout his fifties and sixties, the account balance keeps climbing because the assumed growth rate is consistently positive.

By the time Bill reaches retirement at 55, a linear model might show him at $6.4 million. That sounds great, but it is not necessarily realistic.

When you introduce a more realistic sequence of returns, including approximately three negative years out of every ten (which is a conservative estimate given historical patterns), his balance at age 55 looks more like $5.3 million. That is still a strong position, but it is a meaningfully different number, and it changes the downstream math significantly.

Why does this matter so much? Because Required Minimum Distributions are calculated based on the prior year-end value of your traditional IRA. If your IRA balance is being projected on an inflated linear growth assumption, your projected RMDs are also inflated. That creates a skewed picture of how urgently you need to convert and how much you should convert each year.

The Four Scenarios: Putting It All Together

To understand the real impact of this distinction, it helps to compare four specific scenarios side by side. All four assume the same income goals and spending plan for Bill. The only differences are whether conversions are made and what return sequence is used.

Scenario One: Conversions with Linear (Baseline) Returns

In this scenario, Bill makes Roth conversions all the way up to the 32% tax bracket from age 55 through age 70. The account continues to grow in the background at a steady linear rate. The result is large six figure tax bills throughout his conversion years. Even after the conversions end at 70, the portfolio has grown so much in the background that Bill still has a meaningful traditional IRA balance generating RMDs and ongoing taxes for the rest of his life.

Total lifetime tax in this scenario: approximately $3,447,000.

Scenario Two: Conversions with Realistic Return Sequences

Same conversion strategy, but this time using a realistic sequence of returns that includes some negative years. The result is quite different. Because the portfolio does not grow as aggressively in the background, the conversions actually accomplish what they are supposed to accomplish: drawing down the traditional IRA to a manageable level. By age 76, Bill has converted over $3 million into tax free Roth money, his traditional IRA balance has been significantly reduced, and he no longer faces meaningful RMD obligations for the remainder of his life.

Total lifetime tax in this scenario: just over $2,000,000. That is a difference of approximately $1.4 million compared to Scenario One.

Scenario Three: No Conversions with Linear (Baseline) Returns

This is the scenario most commonly shown in financial planning software when comparing Roth conversions to doing nothing. With no conversions and a steady linear growth rate, the traditional IRA continues to compound at 6% to 7% per year. Taxes grow linearly right along with it. The total lifetime tax bill in this scenario is approximately $5.8 million.

This number is frequently used to make the case for Roth conversions. And it does make that case, but it overstates the comparison because it is built on an unrealistic growth assumption.

Scenario Four: No Conversions with Realistic Return Sequences

This is the scenario that is most often left out of the conversation, and it is arguably the most important one. Same no-conversion approach, but this time modeled with a realistic sequence of returns. The traditional IRA still grows over time, and RMDs still create taxable income later in life. But because the market also experiences down years along the way, the account does not balloon the way the linear model suggests.

In this scenario, the annual taxes never even reach six figures. The total lifetime tax burden is meaningfully lower than both of the linear scenarios.

So Should You Still Do Roth Conversions?

After seeing all four scenarios, you might be wondering whether Roth conversions are worth it at all. The answer, for most people in Bill's situation, is still yes. But the reason is more nuanced than simply minimizing lifetime taxes paid.

When you compare Scenario Two (conversions with realistic returns) to Scenario Four (no conversions with realistic returns), the total lifetime tax difference is real but not as dramatic as the standard software comparison would suggest. The true case for Roth conversions in a situation like Bill's is not purely about the tax math. It is about flexibility.

In Scenario Four, when Bill reaches age 75, he faces Required Minimum Distributions whether he wants them or not. Those are forced taxable distributions that dictate his income regardless of his actual spending needs, his charitable intentions, or changes in his lifestyle. He has no choice in the matter.

In Scenario Two, Bill has options. If he wants to spend less, he can. If he wants to give generously to family members or causes he cares about, he has the flexibility to do that without being constrained by a forced distribution schedule. If his life circumstances change and he needs to adjust his financial plan, the Roth account gives him room to do that.

That flexibility has real value that does not always show up cleanly in a tax comparison spreadsheet. And for many people approaching retirement, it is one of the most important things a financial plan can provide.

What This Means for Your Own Planning

The takeaway from this analysis is not that Roth conversions are always the right answer. It is that the way you model them matters enormously. Here are the key principles to keep in mind:

Use realistic return assumptions. A linear growth model will almost always overstate your future traditional IRA balance and your projected RMD obligations. Ask your financial planner to show you what the plan looks like with some negative return years built in.

Compare the right scenarios. The most meaningful comparison is not conversions with linear returns versus no conversions with linear returns. It is conversions with realistic returns versus no conversions with realistic returns. That comparison gives you a much more honest picture of the trade-offs involved.

Think beyond total lifetime tax. The flexibility that comes from having a significant Roth balance in retirement is a genuine benefit that deserves weight in your decision. Forced RMDs remove options. Roth accounts restore them.

Conversions are not all or nothing. For someone like Bill, doing conversions up to the 32% bracket for 15 years is a meaningful strategy. But the right bracket and the right duration will vary significantly based on your specific income, assets, and retirement timeline.

Model both sides of the ledger. The accounts you are converting from matter just as much as the accounts you are converting into. If your pre-tax portfolio continues to compound strongly in the background during your conversion years, you may find yourself with a larger traditional IRA balance at 75 than you anticipated, even after years of aggressive conversions.

The Bottom Line

Roth conversion planning is one of the most impactful conversations you can have in the years leading up to retirement. But it is only as good as the assumptions underneath it. Projecting your accounts at a flat 6% or 7% every single year is not how markets work, and building your entire conversion strategy around that assumption can lead you to pay more in taxes than necessary or give you a false sense of security about your future tax obligations.

The better approach is to model what you actually know to be true: markets go up and down, some years are negative, and the sequence of those returns has a real impact on how much money you will have and when. When you build that reality into your Roth conversion analysis, you get a more honest picture of what the strategy will actually accomplish for you.

If you have only ever seen your Roth conversion analysis modeled on a straight line, it may be worth asking your financial planner to run the numbers again with a more realistic sequence of returns. The results might look quite different, and that difference could meaningfully change your decision.

This article is for educational purposes only and is not intended to be personal financial, tax, or investment advice. Please consult a qualified financial professional before making any decisions based on the information presented here.

Forest Dutton, CFP®, MSFP, MBA is the owner of Brightworks Financial Planning.