Does A Roth Conversion Make Sense For Me, Or Not?
A Roth IRA conversion involves transferring funds from a traditional IRA or other tax-deferred accounts into a Roth IRA. While this triggers an immediate tax bill, the long-term benefits—tax-free growth, no required minimum distributions (RMDs), and estate planning advantages—make it a compelling strategy for some investors.
Once converted, funds grow tax-free and can be withdrawn without taxes in retirement, provided the five-year rule and age requirements are met. Unlike traditional IRAs, Roth IRAs do not require minimum distributions during the owner’s lifetime, offering flexibility and control over taxable income. Roth IRAs can also pass to heirs tax-free, making them a powerful legacy tool. For example, let’s say you leave $500,000 in a traditional IRA to your child. Under current rules, in most instances heirs must empty inherited IRAs within 10 years. Assume they withdraw $50,000 per year for 10 years and pay income tax—possibly at a high bracket if they inherit during their peak earning years. However, with the same $500,000 inherited Roth IRA, your child withdraws $50,000 per year tax-free. That’s potentially $150K+ in tax savings over the decade!
Conversions are generally most advantageous during low-income years or market downturns, as lower account values reduce the tax hit. For a partial conversion approach, convert just enough to “fill up” your current tax bracket without spilling into a higher one. Also plan for IRMAA as large conversions can increase Medicare premiums and affect tax credits, so run this scenario analysis before acting. Spreading conversions over multiple years can minimize overall tax liability. Also, it’s recommended to use other non-retirement assets to cover the taxes due which maximizes the amount left to grow tax-free.
*Steven Tirpak offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC (Equitable Financial Advisors in MI & TN). The information in this article is not tax, legal or investment advice and does not constitute an offer. PPG-8592636.1 (11/25)(Exp. 11/29)
