San Jose is one of the hardest places in America to do a Roth conversion well — and one of the places where it can matter most.
The difficulty is California’s top marginal income tax rate of 13.3%, stacked on top of federal tax, which means converting in the wrong year can hand Sacramento and Washington a painful combined bill. The opportunity is everything else: RSU and ESPP income that swings wildly from year to year, gap years between roles, sabbaticals, early retirements, and decades of tax-free growth ahead. If you live or work in the South Bay and hold a traditional IRA, an old 401(k), or both, the question is not whether Roth conversions are a good idea in the abstract. It is which years are your conversion years — and which years you should leave the money alone.
This guide covers how Roth conversions work, the 2026 tax landscape, the Silicon Valley-specific plays (RSU coordination and the mega-backdoor Roth), California tax timing, and the honest cases where converting is the wrong move. It is educational, not advice, and it assumes nothing about your situation. Call (214) 203-9192 if you want to walk through your own numbers with an Investment Adviser Representative.
A Roth conversion moves money from a tax-deferred account — a traditional IRA, SEP IRA, SIMPLE IRA, or an old employer 401(k) — into a Roth IRA, and you pay ordinary income tax on the converted amount in the year of the conversion. The trade is simple: pay tax now at today’s rates so that qualified withdrawals later, including all future growth, come out income-tax-free. The mechanics are covered in detail in the site’s guide to how Roth conversions work; what follows here is the part that matters specifically in San Jose.
The conversion itself has no dollar limit and no income limit, which is why it is the tool of choice for high earners who earn too much to contribute directly to a Roth IRA. You can convert any amount in any year, and you can convert in multiple years — which is the entire strategy, because spreading conversions across low-income years keeps each year’s conversion inside lower tax brackets. You do not have to convert an entire account at once, and you cannot undo a conversion once it is done, so the planning happens before the move, not after.
One more structural point: a conversion is not a contribution. It does not depend on having earned income, it does not count against annual IRA contribution limits, and it is reported to the IRS on Form 1099-R by the sending custodian and Form 5498 by the receiving custodian. The tax is owed for the calendar year the conversion is completed, and the deadline that matters for bracket planning is December 31 — there is no extension-year grace period for conversions the way there is for contributions.
Every conversion decision starts with the same comparison: your marginal tax rate in the conversion year versus your expected marginal rate in the years you would otherwise withdraw the money. If today’s rate is lower, converting has a mathematical tailwind. If today’s rate is higher, converting may still make sense for estate or flexibility reasons, but you are paying extra for those benefits and you should know it.
| Rate | Single (taxable income) | Married filing jointly |
|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 |
| 12% | $12,400 – $50,400 | $24,800 – $100,800 |
| 22% | $50,400 – $105,700 | $100,800 – $211,400 |
| 24% | $105,700 – $201,775 | $211,400 – $403,550 |
| 32% | $201,775 – $256,225 | $403,550 – $512,450 |
| 35% | $256,225 – $640,600 | $512,450 – $768,700 |
| 37% | Over $640,600 | Over $768,700 |
2026 brackets per IRS Rev. Proc. 2025-32; standard deduction $16,100 single, $32,200 joint. The IRS sets the exact figures each fall based on inflation adjustments — confirm the current year’s numbers before acting.
What does not change year to year is the structure: converting fills up your current bracket first, and every dollar that spills into the next bracket costs more. The practical technique is bracket-filling — converting exactly enough each December to top out your current federal bracket without crossing into the next one — and repeating it across multiple years. It is unglamorous and it is the single highest-value move in conversion planning.
California adds a parallel calculation. The state’s top marginal rate of 13.3% applies at high incomes, and California does not conform to every federal provision, so a conversion that looks clean on the federal return can carry a heavier state bill than expected. That does not make conversions wrong in California — it makes the timing more valuable, because every point of rate you shave off by converting in a lower-income year is worth more here than in a no-income-tax state. State-specific mechanics are covered further in the guide to how state taxes apply to Roth conversions.
San Jose tech compensation creates the single best conversion setup most people will ever see: income that arrives in lumps and then sometimes disappears. RSUs vest on a schedule, and in a vesting-heavy year your W-2 income can push you into the top brackets — a terrible year to convert. But careers in tech also produce gap years: a layoff, a sabbatical, a stretch between roles, an early retirement years before RMDs begin. In those years your income can fall by half or more while your living expenses are covered by savings. That gap is the conversion window.
The strategy is coordination, not coincidence. Map your RSU vesting schedule against your expected W-2 income for the next three to five years, and identify the troughs — the years where vesting is light, bonuses are absent, or employment income stops entirely. Conversions scheduled into those troughs buy Roth dollars at a discount relative to your normal working years. ESPP dispositions add another lever: the timing of qualifying versus disqualifying dispositions changes your ordinary income in a given year, which changes how much bracket room is available for a conversion. None of this requires predicting the stock market; it requires a calendar and a tax projection, done before December.
One caution that matters in the South Bay: concentrated stock. Many San Jose households hold most of their net worth in one employer’s equity plus a Bay Area home. A Roth conversion does not diversify you, and converting while your RSUs are also vesting heavily can stack ordinary income in a way that pushes you into brackets you never intended to visit. The conversion plan and the equity-compensation plan have to be drawn on the same page.
For employees whose 401(k) plans allow after-tax contributions and in-service withdrawals or in-plan Roth rollovers, the mega-backdoor Roth is a separate and powerful channel. The concept: after maxing pre-tax or Roth elective deferrals and receiving the employer match, you contribute additional after-tax dollars to the 401(k) up to the IRS annual additions limit for total contributions, then promptly roll those after-tax dollars into a Roth account — either a Roth 401(k) or a Roth IRA. Because the after-tax contributions have little time to generate earnings before the rollover, the taxable portion of the move is small, and large sums can land in Roth status each year.
| Step | What happens | Why it matters |
|---|---|---|
| 1. Max the basics | Pre-tax or Roth elective deferrals plus the full employer match | You never leave match money behind to chase the advanced move |
| 2. After-tax contributions | Extra after-tax dollars into the 401(k), up to the IRS annual additions limit | Creates the raw material for the rollover |
| 3. Prompt Roth rollover | In-service withdrawal or in-plan rollover of the after-tax balance into Roth status | Minimal earnings accrue before the rollover, so the taxable portion stays small |
Whether this is available to you depends entirely on your plan’s documents — not all plans allow after-tax contributions, and not all allow the in-service rollover that makes the strategy work. It also interacts with the regular backdoor Roth IRA (nondeductible traditional IRA contribution followed by conversion), and the pro-rata rule can complicate things if you hold pre-tax IRA balances elsewhere. This is one of the most underserved topics in Roth education, and it is worth a dedicated conversation with your plan administrator before assuming you qualify.
California taxes Roth conversions as ordinary income in the year of conversion, at rates up to 13.3% at the top end. Two timing plays follow from that. The first is the low-income-year conversion described above — a gap year does double duty, cutting both your federal and California marginal rates at once, which is where the biggest savings live for San Jose residents. The second is relocation timing: if you are planning a move to a no-income-tax state in retirement, conversions done after you establish residency there avoid California tax on the converted amount entirely. California’s Franchise Tax Board is aggressive about residency audits, so the move has to be real — new driver’s license, voter registration, home, doctors, the full fact pattern — but for households genuinely relocating, shifting conversions to post-move years is one of the largest legitimate tax savings available.
The reverse also matters. If you are moving into California, accelerating planned conversions into the pre-move year — when you are still a resident of the lower-tax state — can be worth modeling. Residency timing rules are state-specific and the details matter, which is why the state-tax guide linked above exists. The principle is simple: California’s rate makes the “when” of a conversion nearly as important as the “whether.”
This is the rule that determines whether a conversion actually builds wealth or just rearranges it: the tax on the conversion should be paid from non-IRA money — cash, a taxable brokerage account, or current income — not withheld from the converted amount. Withholding tax from the conversion shrinks the dollars that land in the Roth, and if you are under 59½, the withheld portion can also trigger the 10% early-withdrawal penalty on top of the income tax. The full mechanics are laid out in the guide to pay the conversion tax from non-IRA funds, but the one-line version is that a conversion funded from outside the IRA moves more wealth into tax-free status per dollar of tax paid, which is the entire point of the exercise.
In practice this means sizing conversions to the cash you have available for the tax bill, not just to the bracket room you have available.
A $200,000 conversion at a combined 35% marginal rate needs roughly $70,000 of outside cash by the following April. San Jose households with concentrated equity positions sometimes fund the tax bill from an ESPP sale or a light RSU vesting year — which is fine, as long as the sale itself is planned and the capital-gains consequences are part of the same projection.
Two separate 5-year clocks govern Roth IRAs, and conversions interact with both. The first clock determines whether earnings withdrawals are qualified: your first Roth IRA contribution or conversion starts a 5-year period, and earnings withdrawn before the clock runs out (and before age 59½, with exceptions) can be taxed and penalized. The second clock applies to each conversion individually: converted principal withdrawn within five years of the conversion — before age 59½ — can trigger the 10% early-withdrawal penalty, even though the principal itself is not taxed again. The detailed treatment, including ordering rules and exceptions, is in the guide to the two Roth 5-year rules. For conversion planning the takeaway is that conversions are a multi-year commitment: the dollars you convert today are most powerful when they can sit untouched for at least five years.
Medicare’s Income-Related Monthly Adjustment Amount — IRMAA — adds a surcharge to Part B and Part D premiums when your modified adjusted gross income from two years earlier crosses IRS thresholds, a mechanism explained in the guide to Medicare IRMAA’s two-year lookback. A large conversion at age 63 can raise your Medicare premiums at 65, and the surcharge tiers are cliff-based: one dollar over a threshold can cost thousands in extra premiums.
| 2024 MAGI (single) | 2024 MAGI (joint) | Part B/month (2026) | Part D surcharge/month |
|---|---|---|---|
| $109,000 or less | $218,000 or less | $202.90 | $0 |
| $109,001 – $137,000 | $218,001 – $274,000 | $284.10 | $14.50 |
| $137,001 – $171,000 | $274,001 – $342,000 | $405.80 | $37.50 |
| $171,001 – $205,000 | $342,001 – $410,000 | $527.50 | $60.40 |
| $205,001 – $499,999 | $410,001 – $749,999 | $649.20 | $83.30 |
| $500,000+ | $750,000+ | $689.90 | $91.00 |
This does not mean avoiding conversions in your early 60s — it means modeling them against the IRMAA thresholds the same way you model them against tax brackets, and sometimes splitting a conversion across two calendar years to stay under a tier.
There is a flip side that favors converting before Medicare. Once required minimum distributions start at 73 or 75, RMDs can push your income into higher IRMAA tiers every year for the rest of your life, with no off switch. Conversions done in the window between retirement and RMD age shrink the traditional IRA balance that generates those RMDs, which can permanently lower both lifetime income tax and lifetime IRMAA exposure. For many San Jose early retirees, the years from 55 to 73 are the entire ballgame.
Honest guidance includes the cases where converting is wrong. Do not convert if you will need the converted dollars within five years and are under 59½ — the penalty clock makes it expensive. Do not convert in a peak RSU-vesting year when you are already in the top brackets, unless there is a specific estate-planning reason. Do not convert if you expect your future marginal rate to be substantially lower — for example, a planned move to a no-income-tax state combined with lower retirement spending — because you would be prepaying tax at a premium. Do not convert if you cannot pay the tax from outside funds. And do not convert based on a single year’s projection without modeling the multi-year picture: a conversion that looks brilliant in isolation can be mediocre once RMDs, IRMAA, Social Security taxation, and California residency are all in the same spreadsheet.
There is also the charitable case. If you plan to leave IRA assets to charity — through beneficiary designations or qualified charitable distributions — converting those dollars first means paying tax on money that would otherwise have passed tax-free. Coordinate the conversion plan with the estate plan, not instead of it.
Johnny Borrelli works with San Jose and Silicon Valley clients remotely — by phone and video — with no physical office in San Jose claimed or implied. The engagement starts with a tax projection, not a product: your vesting schedule, your bracket room, your gap years, your California residency picture, and your cash available for the tax bill, modeled across multiple years before any conversion is executed. Call (214) 203-9192 to start that conversation.
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