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  • Mark Fonville, CFP®

Is a Roth Conversion in Retirement Right for You?

Is a Roth conversion in retirement right for you?

A Roth conversion in retirement can provide you with several benefits like lower taxes, reduced RMDs, and greater flexibility.

But is a Roth conversion in retirement the right strategy for you?

We walk you through some points to consider in this article and have an easy-to-follow guide you can use as well.

The Fundamental Difference Between Roth and Traditional Accounts (And Why It Matters So Much)

The key to understanding the benefits of a Roth conversion in retirement is knowing how each account type’s withdrawals are taxed.

Taxing Traditional IRA Accounts

In general, you can deduct contributions to a traditional or tax-deferred retirement account on the front end, assuming you meet certain income limitations. Keep in mind that you may be unable to make deductible contributions to a traditional individual retirement account (IRA) if you’re covered by a workplace retirement plan or if your gross income exceeds certain limits.

The IRS doesn't tax the growth of the money until you withdraw the funds after age 59 ½, at which point you'll pay income tax on the distribution.

If your entire retirement savings is in tax-deferred accounts, all of your income will be taxable.


Want a comprehensive guide on determining if a Roth Conversion is right for you? Download our Roth conversion workflow here.


Taxing Roth Accounts

Roth IRA contributions, unlike IRAs and 401ks, do not receive an up-front tax deduction.

However, you don’t owe any taxes on qualified distributions when you withdraw the funds in retirement. That includes withdrawals of any investment gains over the years. Tax-free withdrawals bring much more flexibility to your retirement income plan.

Tips On Where To Save

Deciding whether to invest in a traditional or Roth account depends on your tax bracket.

You’ll evaluate your tax rate now compared to what it likely will be in retirement. If you anticipate your tax rate will be higher in retirement, it’s often in your best interest to pay the taxes now so that you can withdraw funds tax-free in retirement. In other words, a Roth makes sense.

But what if you already have tax-deferred savings? Here’s where a Roth conversion comes in.

What’s a Roth IRA Conversion?

A Roth conversion allows you to convert money from a traditional account into a Roth account.

By initiating a conversion (or Roth rollover), you’ll owe income taxes on the amount you convert in the current year, but that money enjoys the benefit of tax-free growth and withdrawals in the future.

You can even take advantage of this backdoor Roth strategy if you are already retired, although there are some things to watch out for that we will talk about in a minute.

Be aware, though, that if you are subject to current required minimum distributions (RMDs), you still have to take your RMD for the year before a conversion. RMDs themselves cannot be converted.

So as you're planning for your retirement, how can you know if a Roth conversion is the right move for you?

How to Tell if a Roth Conversion In Retirement is Right For You

A Roth conversion can be the right move for many reasons. Any one or a combination of the following can mean a conversion is a good choice for you.

  • You presume taxes will be higher in the future. It’s a fact that our current tax brackets are historically low. Given the sizeable national debt (Close to $29 trillion in 2021!), many believe that those rates will go back up at some point. If that’s the case, then converting and paying tax now would save you money in the long run, even if your current tax bill is a little higher.

  • You will be in a higher tax bracket in retirement. If you can clearly see that with your current savings you’ll be pushed into a higher tax bracket in the future, converting may allow you to avoid that higher bracket. Yes, your taxes will go up now, but it may save you even more throughout retirement, a time where being tax conscious can have a significant impact on your lifestyle and legacy.

  • You had a low-income year and are in a lower tax bracket than typical. Maybe you were laid off or are a business owner, and things were slow. If your taxable incom