Many people enter retirement believing the hardest part is behind them. After decades of saving, investing, and planning, they assume the next step is simply living off their portfolio. But some of the most important financial choices actually happen after you stop working.
How you withdraw money, how you manage taxes, and how you structure your income can make a big difference in how long your savings last. One strategy that often comes up is the Roth conversion. It can be a valuable planning tool, but it is not right for everyone. Understanding the tradeoffs is essential before you decide.
Below, we walk through the key considerations so you can determine whether Roth conversions in retirement are a fit for you.
What A Roth Conversion Is And How It Works
A Roth conversion means moving money from a tax-deferred account, such as a traditional IRA or 401(k), into a Roth IRA. When you convert, you pay income tax on the amount you move. In return, the money grows tax-free, and future withdrawals can be taken tax-free as well.
This can be useful if you expect higher taxes later in retirement or if you want to leave tax-free assets to your heirs. The goal is simple. You want to pay taxes at a time when your overall tax burden is lower, not higher.
As retirement income changes over time, it helps to look at your projected income for the next decade or more before deciding when to convert.
Why Your Tax Bracket Matters When Converting
The main idea behind Roth conversions is taking advantage of lower tax years. Many retirees experience a dip in taxable income after they stop working but before Required Minimum Distributions (RMD) start at age 73 (for those born before 1959). Those years can create an opportunity to convert at a lower cost.
If your income is temporarily low, filling up the lower tax brackets with a conversion can reduce your lifetime tax bill. On the other hand, if you already have strong income from pensions, investments or rental properties, converting could push you into higher brackets unnecessarily.
A clear way to evaluate the impact is to model your income across several years. Small increases in taxable income can have ripple effects, so careful planning matters.
How Roth Conversions Affect Social Security And Medicare
Conversions increase your taxable income, which means they can influence how much of your Social Security benefits are taxed. They can also raise your Medicare premiums. Medicare has income tiers, and if your income goes above one of those lines, your monthly premiums increase 2 years later. A Roth conversion adds to your taxable income, which means it can move you into a higher premium bracket if you are not careful.
These costs often catch retirees off guard because the adjustments show up a year later. While this is not a reason to avoid converting, it is part of making a well-informed decision.
Before converting, it is useful to run different scenarios to see how various conversion amounts affect your Medicare brackets and Social Security taxation.
Using Roth Conversions To Reduce Future Required Minimum Distributions (RMDs)
Many high-net-worth retirees face large Required Minimum Distributions later in life because their pre-tax accounts continue to grow throughout retirement. Even if you stop working, your traditional IRA and 401(k) balances may rise due to market growth. By the time you reach age seventy-three, the IRS requires you to begin taking annual withdrawals, whether you need the money or not.
These forced withdrawals can push your income higher at a time when you may want the option to withdraw less. Higher income can also lead to side effects, including larger tax bills and increased Medicare premiums. For some retirees, the RMDs alone are large enough to move them into tax brackets they hoped to avoid.
A Roth IRA works differently. Roth accounts do not require withdrawals during your lifetime. This gives you complete control over how much you take out each year and when. Converting a portion of your pre-tax money into a Roth during your lower-income years can shrink the size of your future RMDs. Even a series of small, gradual conversions can make a meaningful difference.
The goal is not to eliminate RMDs entirely or convert your entire account. That is rarely necessary and often too costly from a tax perspective. Instead, the goal is to convert just enough to bring your future RMDs down to a level that keeps your taxable income in a comfortable range. This can allow you to manage your withdrawals more intentionally, reduce the risk of surprise tax jumps, and give you more control over your overall retirement income plan.
Thoughtful planning can help you find the balance that protects both your lifestyle today and your long-term wealth.
Read more about: How Withdrawals From Different Accounts (Roth, Traditional IRA, brokerage) are Taxed
The Best Time To Convert Based On Market Conditions
Market conditions can play a helpful role in deciding when to convert. When the market is down, the balance in your IRA is usually lower because your investments have temporarily dropped in value. That means you can convert the same number of shares at a lower dollar amount. Since the tax you owe is based on the dollar value you convert, not the number of shares, your overall tax bill is reduced.
For example, imagine an investment currently worth $100,000 but valued at $80,000 during a market downturn. Converting it during the lower valuation means you pay tax on $80,000 instead of $100,000. If the market rebounds later while the money is inside the Roth account, all of that recovery happens tax-free.
This does not mean you should time the market. The decision to convert should still be based on your long-term tax and retirement plan. But when a market pullback lines up with a year where you are already considering a conversion, it can be an added benefit that helps you get more value out of the strategy.
Why Roth Conversions Can Be A Valuable Estate Planning Tool
For families focused on long-term wealth transfer, Roth conversions can also serve as an estate strategy. Heirs who inherit Roth IRAs withdraw the funds tax-free within the required ten-year period. That can be far more valuable than inheriting a pre-tax account and facing large taxable withdrawals.
By converting during your lifetime, you essentially pay the tax so your heirs do not have to. This can be especially helpful if your beneficiaries are already in high-income brackets.
How To Know If A Roth Conversion Is Right For You?
There is no single answer that works for everyone. A Roth conversion requires weighing today’s tax bill against future tax savings, income flexibility, and estate goals.
To evaluate whether the strategy fits you, consider questions like:
- Are you in a lower tax bracket today than you expect to be later?
- Do you have cash available to pay the tax on the conversion?
- Will the conversion cause higher Medicare premiums or more Social Security taxation?
- Are you trying to reduce future Required Minimum Distributions?
- Do you plan to leave assets to heirs who may face high taxes?
If you find yourself answering yes to several of these questions, a partial or phased conversion might make sense.
Plan Your Retirement Income With Keen Capital
The strongest retirement plans look beyond investments alone. They coordinate taxes, income needs, and long-term goals so that your wealth works efficiently across every stage of retirement.
At Keen Capital, we are fee-only fiduciary advisors. We do not earn commissions or sell products. Our only priority is helping you protect and grow your wealth while keeping more of what you earn.
If you would like help evaluating whether a Roth conversion fits into your retirement plan, schedule an introductory call with our team.
We will walk through your projected income, future tax exposure, and legacy goals so you can make a confident, informed decision.
