Roth Conversions Explained: 3 Questions Every Retiree Should Ask

What Is a Roth Conversion, and Why Should I Consider One Now? 

A Roth conversion means moving money from a tax-deferred account (like an IRA or 401(k)) into a Roth account, where withdrawals can become completely tax-free and there is no required minimum distribution. Timing matters because recent tax legislation lowered tax rates, and those lower rates were made permanent (until Congress changes them again). This creates a window where converting may cost less than waiting. In short, you pay tax on the money now, potentially at a lower rate, instead of letting it keep growing and facing a larger tax bill later. 

How Does a Required Minimum Distribution Affect My Taxes and Medicare Costs If I Do Nothing? 

Once you reach a certain age, the IRS requires withdrawals from traditional retirement accounts whether you need the income or not. These withdrawals are fully taxable, and since the account keeps growing in the meantime, the taxable amount keeps snowballing too. In one example, a couple with a $2.1 million IRA who took no action faced a projected $29,543 Medicare surcharge, since premiums rise specifically because you're taking so much out of your IRA. 

How Much Could a Roth Conversion Actually Save Me and My Heirs? 

In that same example, converting 30% of a $2.1 million IRA over five years cut the Medicare surtax difference to about $25,348 in savings and reduced lifetime federal income tax by over $300,000 by age 95. Heirs also benefit: inherited non-Roth money adds to their taxable income and must be withdrawn within ten years, while inherited Roth funds pass completely tax-free and can keep growing for up to a decade. Altogether, this 30% conversion strategy created over $584,000 in combined lifetime and legacy value for the family. 

Is a Roth conversion right for you?

This strategy is generally worth exploring if you're over 60, have at least $1 million in assets (double for couples), and have $400,000+ in an investment account (double for couples) to help cover the conversion taxes. Every situation differs, so it's worth discussing with a financial planner and tax professional. 

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