Roth Conversions: When They Make Sense
How Roth Conversions Work
A Roth conversion moves money from a Traditional IRA (or other tax-deferred account) to a Roth IRA. You pay income tax on the converted amount now, but all future growth and withdrawals are tax-free. There's no income limit for conversions (unlike Roth contributions), no limit on the amount you can convert, and no required waiting period between conversions.
The Golden Window
The most powerful time for Roth conversions is often between retirement and age 73 (when RMDs begin). During this window, your income may be lower than your working years and lower than your future RMD years. Converting enough to "fill up" your current tax bracket each year can result in paying 12–22% tax on conversions instead of 24–32% tax on future RMDs. Over a 7–10 year conversion window, this can save $100,000–$500,000+ in lifetime taxes for larger portfolios.
When NOT to Convert
Roth conversions don't make sense if you're currently in a higher tax bracket than you'll be in retirement, if you need to use IRA funds to pay the conversion tax (this negates much of the benefit), if the conversion would trigger Medicare IRMAA surcharges that outweigh the benefit, or if you expect to be in a much lower bracket in retirement. A CFP can run multi-year projections to determine the optimal conversion amount each year.
Key Takeaways
- 1.The "golden window" for conversions is between retirement and RMD age
- 2.Converting to fill up lower tax brackets can save six figures in lifetime taxes
- 3.Never pay conversion taxes from the IRA itself — use outside funds
- 4.Multi-year projection modeling is essential to optimize the strategy
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