Of all the retirement planning strategies we discuss with our clients, Roth conversions may be the one that generates the most questions. The idea of voluntarily paying taxes now in order to save money later can feel counterintuitive. But when executed thoughtfully, a Roth conversion strategy can reduce your lifetime tax burden, give you more flexibility in retirement, and even benefit your future heirs. Whether you’re still working and starting to plan ahead, recently retired and looking at a window of opportunity, or already taking RMDs and wondering if it’s too late, this strategy is worth understanding.
How a Roth conversion works.
A Roth conversion is pretty straightforward: you move money from a traditional IRA (or other tax-deferred retirement account) into a Roth IRA. The amount you convert is added to your taxable income for that year, and you pay ordinary income tax on it. From that point forward, the converted funds grow tax-free, and qualified withdrawals in retirement are completely tax-free. There is no income limit on who can do a Roth conversion, no cap on how much you can convert in a given year, and no age restriction. The question isn’t whether you can convert. It’s whether you should, and how much.
The “gap years”.
For many retirees, the most powerful conversion window opens between the year you stop working and the year you turn 73, when Required Minimum Distributions (RMDs) begin. During these “gap years,” your taxable income often drops significantly. This temporary dip in income means you can convert portions of your traditional IRA at a lower tax rate than you likely had while working and you’ll likely have once RMDs kick in. Over several years, this approach can meaningfully shrink your IRA balance that will eventually be subject to RMDs, reducing both your future required withdrawals and your future tax bills.
Tax bracket management.
The calibration of Roth conversions is extremely important. The goal is to convert just enough money each year to “fill up” your current tax bracket without spilling into the next one. This requires looking at your full income picture for the year: Social Security benefits, pension income, investment income, and any other sources. From there, you calculate how much room remains in your current bracket and convert up to that amount. It’s a disciplined, year-by-year approach that can help manage your tax liability across your retirement years.
The IRMAA cliff.
One of the most important guardrails in any Roth conversion strategy is IRMAA, the Income-Related Monthly Adjustment Amount that affects Medicare Parts B and D premiums. If your Modified Adjusted Gross Income exceeds certain thresholds, your Medicare premiums increase, sometimes substantially.
Because IRMAA is based on your tax return from two years prior, a large conversion in 2025, for example, could increase your Medicare premiums in 2027. This doesn’t mean you shouldn’t convert, but it does mean you need to be aware of where the thresholds are and factor the potential premium increase into your analysis.
Roth conversions and Social Security taxation.
A connection many people miss is the potential effect of a Roth conversion on the taxation of Social Security benefits. Depending on your “combined income,” up to 85% of your Social Security benefits can become taxable. Converting too much to your Roth IRA in a given year when you’re also receiving Social Security can push more of those benefits into the taxable column. The ideal approach is often to do the bulk of your conversions before you begin collecting Social Security, or to carefully coordinate the two so you stay below the thresholds that trigger higher taxation.
The benefit to your heirs.
Roth IRAs have a unique estate planning advantage. They are not subject to RMDs during your lifetime. This means if you don’t need the money, it can continue to grow tax-free for as long as you live. When your heirs inherit a Roth IRA, they’re generally required to empty the account within 10 years under current tax law, but those withdrawals are tax-free. Compare that scenario to inheriting a traditional IRA, which also has to generally be emptied within 10 years. With an inherited traditional IRA, every dollar withdrawn is taxed as ordinary income to the beneficiary. For families where the next generation is in their peak earning years, inheriting a Roth instead of a traditional IRA can potentially save them tens of thousands of dollars in taxes.
A Roth conversion strategy should be revisited each year based on your income, tax brackets, and goals. It’s one of the most effective tools available to reduce taxes in retirement, protect against future tax rate increases, and build a more flexible financial plan for you and your family. If you’d like to explore whether this strategy makes sense for you, we’re here to help. Don’t hesitate to reach out.
Frequently asked questions:
What is a Roth conversion?
A Roth conversion is the process of moving money from a traditional IRA (or other tax-deferred account) into a Roth IRA. You pay income tax on the amount converted in the year of the conversion, but future growth and qualified withdrawals are tax-free.
Why would I pay taxes now instead of later?
The goal is to pay taxes at a lower rate today than you might face in the future. By converting strategically, you can reduce future Required Minimum Distributions (RMDs) and potentially lower your overall lifetime tax bill.
When is the ideal time to do a Roth conversion?
For many people, the ideal window is during the “gap years” — after retirement but before RMDs begin at age 73. During this time, income is often lower, creating an opportunity to convert at more favorable tax rates.
How much should I convert each year?
A common strategy is to convert just enough to fill up your current tax bracket without moving into a higher one. This requires reviewing all sources of income and carefully managing how much additional taxable income you create.
Are there limits on Roth conversions?
There are no income limits, age restrictions, or maximum conversion amounts. However, just because you can convert doesn’t always mean you should.
Can a Roth conversion increase my Medicare premiums?
Yes. Large conversions can increase your income enough to trigger higher Medicare Part B and D premiums under IRMAA (Income-Related Monthly Adjustment Amount). These increases are based on your income from two years prior.
Will a Roth conversion affect my Social Security taxes?
It can. A higher income from a conversion may cause more of your Social Security benefits to become taxable — potentially up to 85%. This is why many people complete conversions before starting Social Security or coordinate carefully once benefits begin.
Is it too late to do a Roth conversion if I’m already taking RMDs?
Not necessarily. While RMDs must be taken first and cannot be converted, you can still convert additional funds beyond that. However, the opportunity may be less impactful than during earlier retirement years.
How do Roth conversions benefit my heirs?
Roth IRAs can be a powerful estate planning tool. While heirs generally must withdraw the funds within 10 years, those withdrawals are typically tax-free, unlike inherited traditional IRAs, which are taxed as ordinary income.
Disclaimer: The information above is for general educational purposes only and should not be considered financial, tax, or legal advice. Always consult with a qualified professional regarding your specific situation. You should consult with your CPA and/or attorney before implementing any estate planning, gifting, or tax-related strategy.