A well-orchestrated tax strategy is essential to help build and preserve your wealth. Roth conversions are one of the most powerful tools in that arsenal.
Let’s explore how converting pre-tax retirement assets into a Roth IRA may unlock long-term tax-free growth, potentially bolster your financial resilience and help set your legacy on solid ground.
What is a Roth conversion?
A Roth conversion is the process of moving funds from accounts where your savings have grown tax-deferred. These might include a traditional IRA, SEP IRA or 401(k). Then, you convert this money into a Roth IRA (or merge it into an existing Roth if you already have one).
Upon conversion, you pay income taxes on the converted amount in that year. Once the funds are converted to a Roth, your money grows tax-free and qualified withdrawals (including for heirs) remain tax-free as well.
Why consider this move? The big advantage is control. By strategically timing conversions during years when your income, and your tax rate, are lower, you may be able to reduce your lifetime tax bill and potentially leave a more tax-efficient legacy.
When are Roth conversions most powerful?
The ideal window often arrives after retirement, but before required minimum distributions (RMDs) begin and before Social Security benefits kick in. During these lower-income years, you may find yourself in the 10 to 24% tax brackets. If you anticipate higher tax rates in the future, converting now can mean substantial tax savings down the road, both for your own retirement cash flows and for any beneficiaries.
Key considerations: Look beyond the new tax bill
While understanding the up-front tax cost is important, our job is to help you consider related implications so you don’t overlook anything important, including:
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- Medicare’s IRMAA surcharge: If you’re on Medicare or will be soon, keep IRMAA (income-related monthly adjustment amount) in mind. Higher Modified Adjusted Gross Income (MAGI) can mean you’ll pay surcharges on your Medicare Part B and Part D premiums. These are “cliff” thresholds—with no phase-out—so even a small conversion that nudges you over the line can have an outsized effect on your cash flow.
- Hidden costs in the tax code: Roth conversions can temporarily inflate your income and trigger phaseouts for valuable deductions and credits. For example, the new One Big Beautiful Bill Act increased the state and local tax (SALT) deduction cap to $40,000, significantly benefitting those in high-tax states. However, these deductions begin to phase out once MAGI surpasses $250,000 (single) or $500,000 (married filing jointly), potentially limiting your benefit.
- New senior deduction limits: There’s now a $6,000 deduction available per taxpayer over age 65—or $12,000 if both spouses are over 65. However, this benefit phases out for higher earners, with income limits at a MAGI of $75,000 for single taxpayers and $150,000 for those married filing jointly. If a Roth conversion elevates your income above these thresholds, you could lose access to this valuable deduction, impacting your overall tax efficiency.
Comprehensive tax planning for every stage of your life
Your tax strategy should never be an afterthought. We integrate year-round planning across investments, income sources and estate intentions, ensuring that moves like Roth conversions aren’t executed in a vacuum, but as part of your larger, integrated wealth strategy. From continuous tax optimization to strategic gifting, and navigating complex deduction landscapes, our experienced professionals guide you confidently at every step.
The bottom line
Roth conversions can be a game-changer but must be tailored to your unique financial journey. Together, we can evaluate not just your immediate tax bill, but the full, multi-year impact on your wealth and your legacy. Ready to optimize your retirement and broaden your options? Let’s chart the course thoughtfully, strategically and with your goals in mind. Call us to continue the conversation and find out if a Roth conversion is right for you.
