How this calculator works
First it projects the account to 18 exactly like our growth calculator: contributions at the start of each year, the $1,000 deposit for eligible births, annual compounding. At 18, the taxable portion is the balance minus your own contributions — your contributions are after-tax basis and convert free (see the withdrawal rules for why). The conversion tax is your chosen rate times that taxable portion.
Then both paths grow to 65 at the same return. The Roth path is worth its full balance — no tax ever again. The traditional path pays your retirement rate on everything except basis. If the conversion tax is paid from outside savings, we credit the traditional path with that money invested in a taxable account (long-term gains taxed at 15%) — otherwise the Roth path would look better than it really is. If the tax is paid from the account, the converted amount shrinks and the withheld money is itself an early distribution, so we add the 10% penalty on it — one more reason to pay from outside.
Why the math usually favors converting
The trade is simple: pay roughly 10–12% once at 18, or pay the retirement rate — often 22%+ — on a vastly larger number at 65. Because the conversion happens when the balance is at its lifetime smallest and the rate at its lifetime lowest, the break-even retirement tax rate shown above is usually strikingly low. On the default scenario, staying traditional only wins if the child somehow retires paying less than about 6% — essentially never.
Two more timing considerations
- Financial aid: conversion income lands on that year's tax return, and the FAFSA looks back two tax years. A big conversion at the wrong moment can cost need-based aid; families expecting aid often convert after the last aid-relevant year.
- Market dips are conversion sales: the tax is a percentage of the balance on conversion day. Converting in a down market taxes a smaller number, and the recovery happens inside the Roth, tax-free.
Frequently asked questions
What exactly converts tax-free?
Your family's own contributions — they were after-tax going in, so they're basis. The earnings, the $1,000 federal deposit, and any employer contributions are the taxable part.
Why convert at 18 instead of later?
Lowest balance, lowest bracket, longest tax-free runway. Every year of delay compounds more money that will eventually be taxed.
What's the kiddie tax again?
A dependent child's unearned income above a small threshold is taxed at the parents' rate. Conversions count. Spread them out or wait until independence.
Where should the tax money come from?
Outside savings. Paying from the account shrinks the Roth and generally adds a 10% penalty on the withheld amount.
Does converting affect financial aid?
It can — conversion income raises the income the FAFSA sees two years later. Time it around the aid window if aid matters.
This tool is for education only and is not financial, tax, or legal advice. Roth conversions are irreversible (recharacterization was eliminated in 2018), kiddie-tax thresholds change yearly, and Trump Account rules reflect IRC §530A, IRS Notice 2025-68, and the March 2026 proposed regulations — final regulations may differ. Verify at irs.gov/trumpaccounts and consult a qualified professional before converting.