Roth Conversion Strategies: When and How Much to Convert
A Roth conversion moves money from a traditional IRA to a Roth IRA. You pay tax now, but the money grows tax-free forever. Done right, it can save tens of thousands in lifetime taxes. Done wrong, it's just prepaying tax for no benefit.
Why Convert at All?
Traditional IRA money will eventually be taxed—either when you withdraw it or when you're forced to take Required Minimum Distributions (RMDs) starting at age 73. If you expect to be in a higher tax bracket later (or if tax rates rise), paying tax now at a lower rate makes sense.
Other benefits of Roth money:
- No RMDs: Roth IRAs don't have required distributions during your lifetime
- Tax-free inheritance: Heirs pay no income tax on inherited Roth money
- Tax diversification: Having both pre-tax and Roth money gives you flexibility
The Golden Window: Ages 60-72
For many people, the best time to do Roth conversions is after retiring but before Social Security and RMDs kick in. During these years:
- Your income is often lower than during your career
- You haven't started RMDs yet (which would add to income)
- You may not be taking Social Security yet
- You can "fill up" lower tax brackets with conversions
Example: The Roth Conversion Ladder
Sarah retires at 60 with $800,000 in her traditional IRA. Her only income is $30,000/year from a part"../../../coming-soon/blog/us"-time job. She's in the 12% bracket with room to spare.
Each year from 60-72, she converts $40,000 from traditional to Roth. She pays tax at the 12% bracket on most of it. By 73, she's moved $480,000 to Roth, paying roughly $58,000 in total tax.
If she'd left it in the traditional IRA, RMDs plus Social Security could push her into the 22% or even 24% bracket. Over 20 years of retirement, the tax savings can easily exceed $50,000.
How Much to Convert Each Year
The goal is usually to "fill up" your current tax bracket without spilling into the next one. Key thresholds to watch in 2024:
- $23,200: Top of the 10% bracket (married filing jointly)
- $94,300: Top of the 12% bracket (MFJ)
- $201,050: Top of the 22% bracket (MFJ)
- $383,900: Top of the 24% bracket (MFJ)
Watch out for IRMAA: If your income exceeds certain thresholds (~$103,000 single, ~$206,000 married in 2024), you'll pay higher Medicare Part B and D premiums two years later. Factor this into your conversion math.
When Conversions Don't Make Sense
Roth conversions aren't always the right move:
- You're in a high bracket now: If you're working and earning $200k+, you're probably paying more tax on conversions than you would in retirement
- You need the money soon: Converted money should ideally stay in the Roth for at least 5 years to avoid penalties
- You can't pay tax from outside funds: Using IRA money to pay the conversion tax defeats much of the purpose
- You expect to be in a very low bracket: If you'll qualify for the 0% bracket on capital gains in retirement, keeping traditional money might be better
The Multi-Year Planning Challenge
The optimal conversion strategy isn't about one year—it's about your entire retirement. You need to project:
- Future tax rates (which nobody knows for sure)
- When you'll start Social Security and how much
- Your RMDs and how they grow over time
- Other income sources (pension, part-time work, etc.)
- How long your money needs to last
This is exactly the kind of multi-variable problem that's hard to solve with rules of thumb.
How Talk Through Wealth Helps
Instead of guessing, model your specific situation:
- Project your tax bracket year by year through retirement
- See the lifetime tax impact of different conversion strategies
- Find the optimal conversion amount for each year
- Factor in Social Security, RMDs, and IRMAA
- Compare "convert aggressively" vs "convert gradually" vs "don't convert"
Optimize Your Roth Conversion Strategy
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