Roth Conversion vs Mortgage Payoff Calculator
Should you use spare cash for a Roth conversion or pay down your mortgage? This calculator compares 30-year wealth under both scenarios and gives you a clear, data-backed verdict.
Roth Conversion vs Mortgage Payoff: The Core Trade-Off
Both strategies use the same liquid cash, but they work in opposite directions. Paying off your mortgage provides a guaranteed, risk-free return equal to your mortgage rate — currently around 6.5–7% for many homeowners. A Roth conversion deploys after-tax dollars into a tax-free growth vehicle that, if invested in equities, has historically returned 7–10% annually over 30 years — but with volatility. The decision hinges on three factors: expected return vs mortgage rate spread, current vs future marginal tax rate, and risk tolerance. Last updated: May 2026.
Key Decision Framework
| Scenario | Better Choice | Why |
|---|---|---|
| Mortgage rate > expected return | Pay off mortgage | Guaranteed return beats market |
| Expected return > mortgage rate by 2%+ | Roth conversion | Tax-free compounding wins long-term |
| Tax rate rising in future | Roth conversion | Pay tax at lower rate today |
| Near retirement, risk-averse | Pay off mortgage | Guaranteed cash flow freedom |
The Tax Angle: Why Roth Timing Matters
A Roth conversion triggers ordinary income tax now in exchange for permanent tax-free growth. If you're in a low-income year (early retirement, gap year, business loss year), the conversion tax is cheapest — making it the best window to convert. Compare your current marginal rate versus the rate you expect to pay in retirement. If you expect RMDs to push you into a higher bracket at 73+, converting now at a lower rate creates lasting tax efficiency. The mortgage payoff provides no such tax advantage — mortgage interest deductions benefit only itemizers, and fewer than 10% of filers itemize since the 2018 TCJA standard deduction increase.
Frequently Asked Questions
Should I pay off my mortgage or do a Roth conversion?
It depends on your mortgage rate vs expected investment return, and your current vs future tax rate. If your mortgage rate is 3% and stock returns average 7%, investing wins mathematically. If your rate is 6.5%+ and you're near retirement, paying off the mortgage offers guaranteed risk-free return equivalent to your rate.
What tax do I owe on a Roth conversion?
The converted amount is added to your ordinary income for the year and taxed at your marginal rate. For example, converting $50,000 at a 24% marginal rate costs $12,000 in taxes now. Future Roth withdrawals are 100% tax-free if you're 59½+ and the account is 5+ years old.
When does Roth conversion beat mortgage payoff?
Roth conversion wins when (1) expected investment return exceeds mortgage interest rate, (2) your current marginal tax rate is lower than expected future rate, (3) you have decades for Roth assets to compound tax-free, and (4) your Roth account has no required minimum distributions (unlike traditional IRAs/401ks).
When does mortgage payoff beat Roth conversion?
Mortgage payoff wins when (1) your rate is 6%+ and markets are uncertain, (2) you are risk-averse and need guaranteed cash flow flexibility, (3) you are near or in retirement and want predictable housing costs, and (4) your marginal tax rate will be lower in retirement than it is today.
Can I do both — partial mortgage paydown and partial Roth conversion?
Yes. Many planners recommend splitting the available cash. For example, apply half to mortgage principal to reduce required payments and use the other half for Roth conversion. This hedges both the interest rate risk and the tax rate risk simultaneously.