As we head into the final months of the year, one important question to revisit is: does a Roth conversion make sense for me right now?
A Roth conversion allows you to move money from a traditional IRA into a Roth IRA. You’ll pay taxes on the converted amount this year, but from then on, the money grows tax-free, and qualified withdrawals in retirement are also tax-free. That can be a huge advantage over time — especially with tax laws and rates that may change in the future.
Why People Choose to Convert
- Tax-free growth on future earnings
- No Required Minimum Distributions (RMDs) from Roth IRAs
- Flexibility in retirement income through tax diversification
- Potentially lower tax brackets today compared to the future
- Tax-free legacy for heirs
Why People Decide NOT to Convert
- Their current income is already high, so the tax bill from a conversion would push them higher.
- They expect to be in a lower tax bracket later, making conversion less advantageous.
- They rely on IRA funds in the short term and don’t want to use outside cash to pay the tax.
- They’re concerned about Medicare premium surcharges or losing deductions/credits if income rises.
- They plan to use Qualified Charitable Distributions (QCDs) directly from an IRA to reduce taxable income while supporting causes they care about.
Real-World Examples
For example, if a couple in their early 60s has relatively low income in retirement’s first years, they might choose to convert smaller amounts each year. Over time, this could allow them to build more Roth assets, reduce future RMDs, and create flexibility in how they draw retirement income.
On the other hand, if a client in her late 60s already has substantial income from Social Security and a pension, a Roth conversion might push her into higher tax brackets and increase her Medicare premiums. In that situation, she might consider leaving her IRA intact and using qualified charitable distributions (QCDs) to manage future RMDs.
Both of these examples show that the right answer depends on timing, income, and long-term goals.
The New Senior Deduction
Starting in 2025, taxpayers age 65 and older may qualify for a new $6,000 deduction ($12,000 for married couples where both spouses are 65+). The deduction phases out at higher incomes, and because Roth conversions add to taxable income, converting too much could reduce or eliminate the benefit.
That’s why it’s so important to plan conversions carefully — balancing today’s opportunities with tomorrow’s needs.