Roth IRAs- To Convert or Not to Convert?

That IS the Question! Converting IRA balances to Roth can be very advantageous and you may already be thinking of this for yourself. There are generally two primary benefits of conversion:

# 1- Reducing a future income tax burden from required minimum IRA distributions.
If you have sizeable IRA balance, the additional income from required annual distributions at the mandatory RMD age could raise your tax bracket and potentially cause increased monthly Medicare premiums.

Converting pre-tax IRA balances to Roth can help avoid large mandatory distributions. Doing so early could allow time for investment growth to recover taxes paid during conversion.

# 2 -Saving heirs from hefty income taxes and securing a legacy they get to keep. 
Non-spouse heirs are required to deplete inherited IRAs within 10 years. A good portion goes to the IRS, as distributions add substantial income each year. Along with the possibility of increased tax brackets, Medicare premiums may be affected if heirs are 63 or over during the 10 years.

By converting to Roth, heirs’ distributions are tax-free, as long as the original owner converted at least five years prior to passing. (Amounts converted within five years are distributed tax-free, but any growth is subject to income tax, unless beneficiaries wait until the five-years are met before taking out these earnings.)

Things to Consider:

• Will you have enough cash available to pay any conversion taxes?
• Will your age/ health allow time for Roth IRA growth to recover taxes paid?
• If age 63 or older, how will conversion affect Medicare premiums? *2026 income affects 2028 premiums.

Optional Strategies

After discussing conversion with a professional, you might find that conversion isn’t your best solution.

Below are 3 additional strategies that might help achieve your objectives.

QCDs

Qualified Charitable Donations (QCDs) are gifts made directly from an IRA to a qualified charity and bypass your taxable income. The 2026 QCD limit is $115,000 per person. Donors must be 70.5 or older at the time gifts are made.

2nd-to-Die Policy

“Second-to-Die” life insurance policies pay at the second spouse’s death, often with the goal of covering estate or inheritance taxes. Here, the goal would be to cover heirs’ taxes on inherited IRAs, even policy premiums paid. Though premiums can feel expensive, death benefits are often worth it.

Social Security Suspense

If you have little to no non-qualified money, Roth Conversion generally isn’t for you. If not, delaying or suspending Social Security benefits and using IRAs for cashflow instead reduces large IRAs in the early years of retirement, while increasing Social Security benefits by about 8% a year, plus inflation.

To determine your best strategy, have a financial plan prepared, which includes various conversion scenarios. A tax analysis will show the potential impact on your tax return. Consult your CPA on how to proceed, sharing any analysis from your financial advisor.

Remember, early is key. For Roth Conversion strategies, the sooner, the better. Like I always say, Your Best Tomorrow Starts Today.