Fifty years ago, planning for your "golden years" was a relatively straightforward formula: you put in your time with one company, retired at 65 with a corporate pension, and relied on Social Security to cover the rest. Fast-forward to 2026, and the retirement landscape has completely transformed into a self-funded marathon shaped by 401(k)s, IRAs and longer lifespans.

Whether you're a baby boomer who remembers the world of 1976 or a Gen Xer navigating the modern realities of 2026, take this 10-question quiz to see just how much the financial rules of retirement have shifted over the last half-century.

More from Kiplinger on Retirement Saving:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• Roth IRAs: What They Are and How They Work
• Roth IRA Contribution Limits for 2026
• Average IRA Balance by Age and Generation
• Social Security Basics: Things You Must Know About Claiming and Maximizing Your Social Security Benefits
• What's My Social Security Full Retirement Age (FRA)?
• Presidents and Social Security: How Presidents Have Impacted America's First Social Insurance Policy
• Does Donald Trump Claim Social Security Benefits?

While the daily news cycle can make anyone feel anxious about their nest egg, a quiet and highly strategic shift is underway within American retirement accounts. Rather than running to the sidelines or moving to cash when things get bumpy, seasoned savers are building up their balances and locking in long-term security.

The latest data from Fidelity’s Q1 2026 retirement analysis shows that today's preretirees are moving away from emotional, knee-jerk decisions and instead focusing on steady discipline and smart tax planning.

“Retirement savers started the year strong with record-high savings rates and contributions, reflecting the long-term approach they’re taking with retirement preparedness," said Sharon Brovelli, president of Workplace Investing at Fidelity Investments.

According to Fidelity's analysis, which tracks more than 54 million accounts across IRAs, 401(k)s and 403(b)s, American workers have entered an era of financial discipline. Rather than surrendering to market fluctuations, retirement account holders are locking in long-term positions and building structural financial defenses.

The sentiment vs behavior divergence

A gap has emerged between negative economic sentiment and the actual financial behavior of experienced savers. While broader economic indicators have generated widespread uncertainty, total savings rates surged to historic highs in the first quarter.

The combined employee and employer contribution rate for employer 401(k) accounts reached an unprecedented 14.4%, moving closer to Fidelity's recommended 15% target. At the same time, 403(b) workplace savings rates reached 12%.

Individual investors also expanded their independent safety nets; total IRA contributions surged 29% year-over-year, supported by a 28% increase in the number of individual accounts actively contributing. Roth accounts were the most popular, accounting for 67% of IRA contributions.

Managing what you can control to beat market drops

This steady cash inflow from contributions has created a short-term disconnect between what savers can control and immediate market returns. During the first quarter, brief market volatility caused average account balances to decline slightly on a quarter-over-quarter basis.

Specifically, the average IRA balance fell 4% from Q4 2025 to $131,380 in Q1. Workplace 401(k) accounts averaged a slightly higher $141,000, which was also down 4% from the previous quarter. Considering the longer-term trend, however, 10-year balances are up 46% for IRAs and 61% for 401(k)s, according to Fidelity.

In previous decades, shrinking balances often sparked emotional panic, prompting investors to freeze their contributions. However, in this period, investors took the opposite approach. Nearly one in five plan participants (18%) successfully increased their savings rates during this period, while asset-allocation adjustments remained near historic lows at 5.7%, down from 6.0% a year prior.

Keeping asset allocation steady regardless of market fluctuations is a strategy that has been rewarded in the long term; despite minor quarterly fluctuations, average 401(k) and 403(b) balances increased 7% and 11%, respectively, above their 2025 levels.

The shift to tax-free growth

Perhaps the most strategic behavior highlighted in the data is the massive acceleration into post-tax accounts. Roth accounts dominated the market, representing a staggering 67% of all Q1 IRA contributions. More remarkably, Roth conversion transactions escalated by 41% year-over-year.

A Roth conversion requires an investor to pay ordinary income tax on assets immediately, out of pocket, at current tax rates. Choosing to take a definitive, immediate cash-flow hit during an uncertain economic landscape suggests investors are heavily prioritizing future tax flexibility and predictability over immediate liquidity.

Automated inertia

As the data show, the primary reason contribution rates went up isn't that millions of Americans suddenly found the collective willpower to log into their accounts and manually increase their savings during a turbulent quarter. They did it because of auto-escalation features built into their workplace retirement plans.

When a system automatically bumps a worker's contribution rate by 1% every year, inertia becomes a superpower. Because it takes manual effort to log in and stop the increase, most people just let it ride.

For the portion of the data that was manual — specifically the 29% surge in IRA contributions and the 41% spike in Roth conversions — we're seeing the reality of a much more financially literate investing public.

Long-time savers have finally internalized a lesson that financial planners have been preaching for decades: Market downturns are a buying opportunity. In this case, these savers "bought" a tax-free stream of income and fewer RMDs.

Long-term vision over short-term noise

For decades, economists worried that emotional panic would always be the Achilles' heel of the individual investor. However, Fidelity’s Q1 2026 analysis reveals a different story. The latest retirement trends show that the modern pre-retiree is becoming a more resilient saver.

By maintaining a steady approach that has brought average savings rates close to the recommended 15% benchmark, investors have largely avoided the psychological traps of market volatility — at least in the first quarter.

This stability has allowed them to focus on what matters most for the next chapter: capitalizing on temporary market dips to execute strategic Roth conversions.

By accepting an upfront tax hit today, these savers are mitigating the risk of future tax hikes and building more predictable financial security for themselves and their heirs.

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If you have retirement savings in an IRA or 401(k), Uncle Sam is your partner on that money because every dollar you pull out of it is taxed.

Consider this common scenario: One spouse in a retired household passes away and the surviving spouse becomes a single taxpayer, which affects their overall tax liability, even though their income goes down.

Let's say the couple's total income was $200,000 a year. While they were married, this meant they had an effective tax bracket of about 15%.

When the husband passes away, the wife's income goes down to $180,000 because she loses the smaller of their two Social Security checks. But going forward, she will file as a single taxpayer, so she is now in the 20% tax bracket.

Additionally, if her RMDs and her income grow each year, her tax rate could keep climbing. And that doesn't even factor in future tax increases. (It's unlikely taxes will stay as low as they are now, considering our nation's debt of $39 trillion.)

Proactive tax planning could have helped protect her from the impact of higher taxes after losing her partner.

For retirees in higher tax brackets looking to help their spouse (or adult children) avoid this kind of tax trap in the future, partial Roth conversions now can help.

1. Protecting the surviving spouse

If you're a married couple, you're in a joint taxpayer bracket. And once both spouses reach age 65, you become eligible for specific additional tax benefits.

For example, with a taxable income of $148,300, you fall within the 12% tax bracket for married couples filing jointly after the deductions.

The $148,300 figure includes a $32,200 standard deduction based on your filing status. You would also receive the $3,300 additional standard deduction for both being over age 65 – this consists of $1,650 for each spouse, as determined by the One Big Beautiful Bill for taxpayers over 65. On top of this, there is an additional $12,000 bonus deduction for those over age 65 (up to a certain income limit).

However, when one spouse dies, the surviving spouse (usually the wife) jumps up to the 24% tax bracket.

If your income is higher, it's an even larger jump in taxes for the surviving spouse.

For example, if your taxable income as a married couple is $250,000 a year, you can see on the chart below that you're in the 24% tax bracket because you're "married filing jointly."

However, if the husband dies first, the surviving spouse is now a "single filer" with taxable income of $250,000. You can see she has now jumped up into the 32% tax bracket.

A Roth IRA may help protect the surviving spouse from higher taxes as a single taxpayer because you already paid the taxes while you were both alive as joint taxpayers.

2. Protecting non-spouses

When you die and leave your IRA to your children, they only have 10 years to empty your IRA completely.

Let's assume the IRA you leave to your children will earn 4% annual returns over the 10-year period after you leave it to them. This means that your children will have to take out approximately 14% of the IRA balance every year.

This would allow them to take out the 4% annual earnings along with 10% of the principal, so the entire IRA is drained over that 10-year period without a potential big tax hit in year 10.

However, this 14% annual IRA withdrawal could put your heirs in a higher tax bracket.

While a Roth conversion would mean paying income tax now, that could be a bargain compared to the potentially higher income tax brackets your heirs might have to deal with after you're gone — and any state income taxes they may also have to pay.

Additionally, if your children live in a state that has a state income tax (such as New York, which has a 10.9% top state tax bracket), they may be subject to federal income taxes and up to an additional 10.9% in state income taxes as well.

We use software called Holistiplan that helps identify the maximum amount to withdraw year by year to take advantage of today's tax brackets, and will work alongside an accountant or a tax professional.

When appropriate, we recommend our Strategic Roth Integration (SRI) plan to clients so that they can take advantage of today's income tax rates and never pay taxes on their Roth IRA again.

If you'd like to learn more, check out my new book, IRA Owners: Help Defuse Your Ticking Time-Bomb, co-authored with Steven Kao.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Dear Wealth Wise: As a retired 66-year-old, I find plenty of guidance on portfolio allocation but very little on asset location — how investments should be divided among taxable accounts, traditional IRAs/401(k)s, and Roth IRAs/401(k)s.

Many experts suggest a portfolio split such as 50% stocks (mostly U.S., with some international exposure) and 50% more conservative investments, such as bonds and money market funds. But there's far less discussion about where those assets should be held to maximize after-tax returns. I feel undereducated on the topic of asset location and would like more guidance on how retirees can optimize investments across accounts with different tax characteristics.
— Where Should I Stash My Assets?

Dear "Where Should I Stash My Assets?": Asset allocation is an important part of retirement planning. And you, as a 66-year-old retiree, seem well informed about how much of your portfolio should go into aggressive holdings like stocks versus stable or income-producing assets like bonds.

But your question is one that's not raised often enough — where do the assets actually go?

Mark Sanaiha, CFP, founder and wealth advisor at Macallen Capital, says he likes to tell clients to follow a simple rule.

"Put your least tax-efficient assets where the IRS can't touch them, and your most tax-efficient assets where they're built for low taxes."

Let's dig deeper into that strategy to answer the burning question of how to find the right home for your various retirement assets.

Assets that belong in a traditional IRA or 401(k)

Traditional IRAs or 401(k)s offer the benefit of tax-free contributions and tax-deferred gains while you're in the process of building wealth. In retirement, though, they become less tax-efficient, since withdrawals are taxable and required minimum distributions (RMDs) eventually kick in.

Cody Garrett, CFP, owner and financial planner at Measure Twice Financial, says, "Traditional pre-tax retirement accounts should generally hold tax-inefficient assets, such as taxable bonds, money market funds, REITs, and BDCs."

As Garrett explains, these assets tend to distribute ordinary income rather than qualified dividends and can have higher yields than equities.

Garrett also says that for many retirees, it makes sense to allocate most or all of their bond holdings to traditional retirement accounts. Doing so could shelter your bond interest from immediate taxes, which is important, since bond interest is taxed at ordinary income rates.

Assets that belong in a Roth retirement plan

Roth accounts are often touted as a shining example of tax efficiency. Though contributions are made with after-tax dollars, gains are completely tax-free, as are withdrawals. There are also no RMDs to worry about.

Because assets held in a Roth IRA or 401(k) aren't subject to tax gains, Garrett says, "Roth accounts are often best used for assets with the highest expected long-term growth."

If you have U.S. or international stock market funds and other growth-oriented equity investments, you may want to load them into your Roth.

Sanaiha says, "Your Roth IRA is your growth engine, … so don't waste that on cash or money markets."

Sanaiha also cautions that while it often makes sense to hold international funds in a Roth IRA, it depends on the fund.

"In some cases, the tax drag is comparable to a value fund, so we'll then consider traditional or Roth IRAs for placement," he says.

Assets that belong in a taxable account

With a taxable account (such as a standard, non-retirement brokerage account), there's no IRS benefit when you're contributing funds and building wealth. But there's flexibility. You don't have to worry about annual contribution limits, early withdrawal penalties, or RMDs. Still, it's important to choose the right assets for these accounts.

"Taxable accounts favor tax-efficient investments that produce little taxable income each year and receive long-term capital gains tax treatment on qualified dividends," Garrett explains. "Examples include low-turnover equity funds, such as U.S. stock market index funds. These investments often generate modest dividend income."

Garrett says taxable accounts can also be appropriate for holding crypto ETFs and other volatile assets.

"Investors can harvest capital losses if values decline, while long-term capital gains from securities held longer than a year receive favorable tax treatment," he says. "Many crypto investors instinctively place speculative assets in Roth accounts hoping for tax-free growth, but taxable accounts provide useful tax benefits if the investment performs poorly."

That said, many retirement investors may prefer to skip highly speculative investments like crypto, even with the tax-loss harvesting benefit.

Another attractive option to balance tax efficiency and liquidity needs is municipal bonds or muni market funds, which are exempt from federal income tax. Sometimes they may also be exempt from state or local taxes if they are for in-state bonds.

Assets that belong in an accessible bank account

Retirees are often advised to maintain a hefty cash cushion to cover emergency expenses or buy themselves the flexibility to leave their investment portfolios untapped during periods of market decline. This helps avoid locking in permanent portfolio losses.

Garrett says that from a tax-efficiency perspective, cash and money market funds are best suited for traditional retirement accounts since interest is taxed at ordinary income rates.

"That said, many retirees still prefer to maintain one to two years of liquidity in checking, savings, and other taxable accounts, sacrificing tax optimization for peace of mind," Garrett explains.

Your strategy may shift over time

It's good to go into retirement with a general framework of where to house your various assets. But Sanaiha says that just as your asset allocation might change over time, so too might some of your asset location decisions.

For example, since our reader is 66 years old, their RMDs will start at age 75 under the SECURE Act 2.0. They will have nine years to plan Roth conversions to reduce the risk that RMDs will force them into higher tax brackets.

Moreover, a retiree's asset locations will need to shift as asset allocations change. As you spend down your accounts, using the bucket or other retirement withdrawal strategies, your overall asset allocation will shift. If you spend all your taxable cash first, you may need to rebalance other accounts, which could trigger taxes.

"Asset location decisions should always be made in the context of your overall tax situation, RMDs, Social Security timing, and legacy goals," he says. "What's optimal at 66 may shift significantly by the time RMDs begin."

An evolving strategy, Sanaiha insists, could help you generate retirement income more efficiently while keeping the most money away from the IRS.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts, in this advice column, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.

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For years, retirees have been told the same thing: Protect your Roth IRA at all costs. Let it grow. Don't touch it. Save it for last. And in many cases, that advice holds up.

But if you're among a small group of Americans with both a pension and $1 million or more saved, the rules change. What works for the average retiree doesn't always apply to what we often call the "2% Club." (I wrote a book about this group, which you can request here.)

In fact, there are specific moments when tapping your Roth IRA earlier can be strategic and save money on taxes. Here are eight situations where it may make sense to take withdrawals from your Roth, even if you've spent years trying to build it.

1. When tax rates are higher than expected

Roth assets shine brightest when tax rates rise. If future tax policy shifts, or increases in your personal income push you into higher tax brackets, pulling from your Roth allows you to avoid those elevated rates.

While today's tax environment is historically low, retirees with pensions often find themselves in equal or higher brackets later in life. That's when tax-free income becomes especially valuable.

2. When you're near the top of a tax bracket

Small decisions can have outsized tax consequences. If an additional $10,000 withdrawal from a traditional IRA would push you into the next tax bracket, it may be smarter to take that amount from your Roth instead.

This strategy helps you "cap" your taxable income and avoid paying a higher marginal rate on dollars that could have been tax-free.

Think of your Roth as a pressure valve, used strategically to keep your tax situation under control.

3. During unusually high-income years

Not all retirement years look the same. You may sell a property, receive a large bonus before retiring, cash out unused vacation time or experience another one-time income spike.

In those years, adding more taxable income from traditional accounts can be costly. Roth withdrawals, on the other hand, won't increase your taxable income, making them a useful tool to maintain flexibility when your income temporarily surges.

4. If you're using the Affordable Care Act before age 65

Early retirees face a unique challenge: bridging the gap to Medicare. Health insurance through the Affordable Care Act is income-based. The lower your reported income is, the lower your premiums may be.

By withdrawing from your Roth instead of tax-deferred accounts, you can generate the income you need without increasing your reported income. This could translate into meaningful savings on health insurance during early retirement.

5. To avoid higher Medicare premiums

Once you reach age 63, another income-based threshold comes into play: Medicare premiums. Known as the income-related monthly adjustment amount (IRMAA), these surcharges can significantly increase your Medicare costs if your income crosses certain limits, even by a small amount.

Higher premiums do not change your coverage. You receive the same Medicare benefits regardless of cost.

Strategic Roth withdrawals can help you stay below those thresholds. In some cases, avoiding a relatively small income increase can save thousands in premiums.

6. To navigate the Social Security 'tax torpedo'

Few retirees anticipate how aggressively Social Security can be taxed. As your income rises, more of your Social Security benefits become taxable — up to 85%.

This creates what's often called the "tax torpedo," where each additional dollar withdrawn can trigger disproportionately high taxes.

Roth withdrawals don't count toward this calculation, making them a powerful way to access income without increasing the taxability of your benefits.

7. After the loss of a spouse

The "widow's penalty" is one of the most overlooked risks in retirement planning. After a spouse passes, the surviving partner typically moves from married filing jointly to single tax brackets, meaning higher taxes on the same (or even reduced) income.

In these years, Roth withdrawals can help manage tax exposure because they are not taxable. This provides flexibility when traditional income sources become less efficient.

Also, consider Roths when planning for your heirs

Roth strategies don't end with your lifetime — they extend to your legacy. Under current rules, most non-spouse beneficiaries must withdraw inherited retirement accounts within 10 years. If those assets are in traditional IRAs, every dollar withdrawn is taxable.

But Roth accounts? Those distributions are generally tax-free. If your children are in higher tax brackets, or you expect them to be, preserving Roth assets for inheritance while spending from other accounts can create a more efficient wealth transfer.

The bigger picture: Flexibility over rules

For retirees with pensions and significant savings, the biggest risk isn't running out of money — it's losing control over how and when that money is taxed. That's why tax diversification matters. Having assets across taxable, tax-deferred and tax-free accounts gives you options.

In retirement, options are what allow you to adapt to tax law changes, income fluctuations and life events. In the end, the goal isn't just to build wealth, but to use it wisely. So while Roth IRAs don't always have to be spent early, they should always be used strategically.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on Roth IRAs and the five-year rule, including contributions and conversions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is the Roth IRA five-year rule?

Question: I understand that to withdraw money from a Roth IRA without paying tax or a penalty on the earnings, the account owner must have had the money in the Roth IRA for at least five years and be age 59½ or older. My question relates to when the five-year clock starts when contributions are made over several years. Also, do the rules differ for Roth IRA conversions?

Joy Taylor: The five-year rule your question refers to applies to Roth IRA contributions, rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the year the owner first put money into a Roth IRA. For this first five-year rule, the five-year clock starts on January 1 of the year you first deposited money into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t restart for later Roth contributions, conversions, or newly opened Roth IRA accounts.

Note there is another five-year rule that applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pretax income from traditional IRAs to a Roth. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period. Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above.

For more on both of the five-year rules applicable to Roth IRAs, see our article, "What to know about the five-year rules for Roth IRAs."

2. When does the five-year rule start?

Question: I am 68 and have been doing Roth IRA conversions for the past three years. My first Roth conversion was in 2023. When does the clock start for the five-year rule? And are there separate five-year clocks for each Roth IRA conversion that I do?

Joy Taylor: In your situation, the five-year clock for withdrawing Roth IRA earnings tax-free begins on January 1 of the year that you first put money into any Roth IRA that you own, whether through contributions, rollovers or conversions. So if you first started funding a Roth IRA in 2023, and you don't have other pre-existing Roth IRAs, the five-year period begins on January 1, 2023. It doesn't restart after each conversion.

3. Another question on when the five-year rule starts

Question: I am 70 years old, and I have been doing Roth conversions over the past 10 years. My initial conversion was in 2017, and each year thereafter I converted more money. Does each conversion date have its own separate five-year period or does the five-year period start when I made my first conversion in 2017? I have no other Roth IRAs other than the one I opened in 2017.

Joy Taylor: In your situation, the applicable five-year rule begins on January 1 of the year you first put money into any Roth IRA, via contribution or conversion. And it doesn’t restart. Since your first Roth conversion was in 2017, you are in the clear, and your Roth distributions should be fully tax-free.

4. How does the five-year rule apply to transfers from a Roth 401(k) to a Roth IRA?

Question: I am 64, and I recently retired from my full-time job. While working, I contributed for many years to a Roth 401(k) account. A few months ago, I transferred the funds in that designated Roth 401(k) account to a Roth IRA. Can I start withdrawing money from my Roth IRA tax-free?

Joy Taylor: The general rule for Roth IRAs is that distributions of earnings are nontaxable, provided you are 59½ or older. There is an exception, what experts refer to as the five-year rule. Distributions of earnings taken out within five years of January 1 of the year you first contributed to a Roth IRA are taxed.

You may have had the Roth 401(k) for five or more years, but unfortunately, that time period doesn't transfer to the Roth IRA. So, if this is your first Roth IRA, and you don't have any other Roth IRAs that you had contributed to in the past, the five-year rule would apply. The five-year period begins on January 1 of the year you first put money into any Roth IRA, either through contributions, rollovers or conversions. The ordering rules that apply to distributions from Roth IRAs may mitigate some of the negative tax consequences in your situation. I would suggest speaking with a CPA or your financial planner for more information.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: More Questions on IRAs

Moving your retirement savings from an employer-sponsored 401(k) to an Individual Retirement Account (IRA) is often the result of changing jobs. However, this transition strips away the federal shield of ERISA regulations, exposing your nest egg to hidden costs, aggressive civil lawsuits, and administrative oversights.

True financial security requires understanding these structural gaps — ranging from shifting bankruptcy rules to the vanishing of spousal consent protections — and actively managing your retail accounts, such as IRAs, to replicate the institutional safeguards you left behind. Think your rollover is completely safe? Test your knowledge on how moving your 401(k) into an individual retirement account fundamentally alters your legal rights.

Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on IRAs, from the Kiplinger team:

• The $9 Trillion Shift: Why Your Retirement is Less Safe in an IRA and How to Protect It
• Four Reasons to Roll Over Your 401(k) into an IRA (And Four Reasons Not To)
• Is Your IRA Protected from Creditors in Bankruptcy?
• How to Roll Over a 401(k) in Five Steps
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026

Graduation and adulthood are still years down the road for my two young kids, so my focus now is on setting them up for success when they get there. One way my husband and I are doing that is through 529 college-savings plans.

With these investment accounts, you can set aside money that grows tax-deferred and withdraw it tax-free for qualified education-related expenses, including college tuition and fees, room and board, and computers.

A common concern among parents who contribute to 529s is that their kids won't end up going to college, or that the costs will be lower than expected. Luckily, the qualified uses for 529 money have expanded in recent years.

The One Big Beautiful Bill Act, signed into law last summer, introduced additional eligible expenses, including tuition, books and other fees associated with qualifying non-degree credential programs, such as for plumbing, electrical work, HVAC and welding. You can also withdraw up to $20,000 per year for elementary and secondary school tuition, course materials, tutoring, fees for standardized tests, and more. (Not all states follow the federal rules, so check your state's policies.)

If you end up with leftover money, a compelling option — one that I'm keeping in my back pocket in case my kids don't need all their 529 funds — is the ability to roll over up to a lifetime limit of $35,000 of the 529 balance, tax- and penalty-free, to the beneficiary's Roth IRA.

The 529 plan must have been held for the beneficiary for at least 15 years before you can make this move, and you can't roll over more than the Roth IRA contribution limit ($7,500 in 2026 for those younger than 50) each year.

Even if you withdraw 529 money for non-qualified expenses, all is not lost. You'll pay income tax and a 10% penalty on the investment-earnings portion of the distribution, but not contributions.

Picking a plan

Almost all states sponsor a 529 plan, and you can invest in any of them. More than 30 states offer a tax credit or deduction for contributions. Usually, you can get that tax break only if you invest in your own state's plan.

But in Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio and Pennsylvania, residents get a tax benefit no matter which plan they choose.

If you're shopping among plans, compare features, including the investment options and costs. Most plans offer age-based portfolios that gradually dial down the risk, shifting to more-conservative investments as your child approaches college.

When it comes to minimizing fees, opening an account directly with the state, rather than through a broker, is your best bet. You can compare plans with Saving for College's tool here. The site also rates plans based on performance, ease of use and more.

Read: The Best 529 Plans of 2026

Watch for promotions that could give your savings a boost. May 29 is National 529 Day, and some plan sponsors offer a cash bonus or match to families who open a 529 during a specified window near that date.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Nvidia (NVDA) is the most valuable publicly traded company in the world, thanks to insatiable demand for the semiconductor company's artificial intelligence (AI) chips.

The company is so important that its quarterly earnings reports are often seen as an indicator for the global AI market. With its next earnings event right around the corner, we decided to test your Nvidia knowledge with this quick quiz.

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As we near retirement, we're often told that we'll pay less in taxes once we've retired. But is that always the case?

For some, yes, but for many, I would contend that you'll pay just as much, if not more, in taxes in retirement than you did in your pre-retirement years.

Some people have misconceptions about taxes and retirement. They believe their income will drop significantly but ignore that taxable withdrawals from retirement accounts and other income sources could put them in a higher tax bracket.

Others fail to seek tax advice as they near retirement and don't plan proactively, resulting in the lack of a tax-efficient, long-term distribution strategy.

The complexity of tax laws and how they differ for various accounts and investments is another contributing factor to unforeseen tax liabilities.

Here are some financial aspects of retirement that can lead to a tax trap.

Your lifestyle

Most experts recommend planning to replace 75% to 85% of your pre-retirement annual income to maintain your current lifestyle. While expenses such as commuting or saving for retirement might drop, others, such as healthcare and leisure (travel, entertainment, hobbies, social activities, etc.), often increase.

Without a significant reduction in expenses, you'll need to have an income similar to your later working years, likely keeping you in the same tax bracket.

Social Security

Up to 85% of your Social Security benefits can be taxable, depending on your combined or provisional income, a specific IRS formula used to determine whether Social Security benefits are taxable.

It's calculated by adding your adjusted gross income (wages, interest, dividends, pensions, capital gains and retirement account withdrawals), nontaxable interest (typically, interest from tax-exempt bonds, such as municipal or government bonds) and half the total gross Social Security benefits received during the year.

That combination could create a "tax domino effect" if you withdraw money for living expenses and unintentionally trigger higher taxes on your Social Security.

Here are the income thresholds at which Social Security benefits become taxable:

Medicare

Medicare premiums can increase due to the income-related monthly adjustment amount (IRMAA). That's an extra, income-based surcharge added to Medicare Part B (medical) and Part D (prescription drug) premiums for individuals with higher incomes.

For 2026, single tax filers with a modified adjusted gross income (MAGI) above $109,000 and joint filers above $218,000 are subject to IRMAA. The Social Security Administration uses tax returns from two years prior to determine if the additional fee applies.

Required minimum distributions (RMDs)

RMDs, which for most people begin at age 73 (it's age 75 for those born 1960 or later), could push you into a higher tax bracket. At those ages, the federal government requires people to make withdrawals from tax-deferred, pretax retirement accounts that they built over decades of their working life.

Those accounts include 401(k)s, 403(b)s, 457(b) plans, traditional IRAs, SEP IRAs, SIMPLE IRAs and Thrift Savings Plans (TSPs). The money you withdraw from those funds is considered taxable income.

The potential downside tax impacts of RMDs:

• They could potentially bump you into the next higher tax bracket
• They could increase your taxes on Social Security
• They could also increase your Medicare premiums due to IRMAA

Ways to help reduce the tax trap in retirement

How can you avoid paying unnecessary taxes in retirement? Here are a few strategies to consider.

1. Make Roth conversions (if appropriate).

A Roth IRA might be able to insulate you from future unknown taxes. Roth conversions are moving money from a pre-tax retirement account (such as a 401(k) or traditional IRA) into a Roth IRA.

You pay taxes on the amount you convert in the year you convert; the tradeoff is that you get tax-free growth and in retirement, withdrawals are tax-free. There's no limit on how much you can convert.

A Roth conversion is a popular strategy to help reduce future tax burdens, especially for those expecting higher tax brackets later or wanting tax-free inheritance for their beneficiaries. There are no RMDs for the original owner of the account.

Because Roth withdrawals are tax-free, using funds in your Roth account in retirement can help prevent you from a higher tax bracket.

2. Consider using the low tax window before your RMDs start.

Some people will experience a drop in income when they retire. A prime time to begin withdrawing or converting assets is when you're in a lower tax bracket.

Also consider that the next administration might increase taxes and make it more difficult from a yearly tax-rate perspective for some people to do such withdrawals or conversions.

Along with Roth conversions, here are other strategies to potentially take advantage of the low tax window:

• Consider early voluntary withdrawals. Start taking money out of IRA accounts after age of 59½ to lower the account balance and spread the tax liability over more years, rather than waiting for large, taxable RMDs.
• Balance tax brackets and IRMAA. Target a specific tax bracket in the years between retirement and RMDs to stay below higher tax brackets and avoid Medicare IRMAA surcharges.
• Consider qualified charitable distributions (QCDs). For those age 70½ and older, direct transfers from an IRA to a qualified charity can satisfy upcoming RMD requirements while reducing taxable income, even if you do not itemize deductions.
• "Fill" tax brackets. Purposefully take just enough income from tax-deferred accounts to reach the top of your current, lower tax bracket. You could end up paying less in taxes compared with the higher rates you might face when combined with future Social Security and RMDs.

3. Organize withdrawals by bucket.

In my experience, retirees often pull money from accounts in the wrong order, incurring tax consequences they could have otherwise avoided.

Taking too little from your tax-deferred accounts can lead to huge RMDs later in life. Taking too much early can increase your taxes and, potentially, your tax bracket.

It would be ideal to have a strategy that balances withdrawals from your taxable accounts, IRA (tax-deferred accounts) and Roth, while considering the income from Social Security and pensions.

The order in which you take withdrawals isn't a hard-and-fast rule. A sensible approach is to have three buckets of money:

• Taxable (brokerage accounts)
• Tax-deferred (IRA/401(k), etc.)
• Tax-free (Roth)

Deciding which bucket to withdraw from depends on what's going on in your life at that time.

Let's say you're married and filing jointly in the 12% tax bracket, which tops out at $100,800 of income for the 2026 tax year. Your taxable income for the year was close to that limit. You want to go on a cruise, and it's going to cost $5,000. Should you pull that amount from your tax-deferred bucket? No.

In this example, it may be better to pull it from your Roth because it's not taxable, and that $5,000 is not going to bump you into the next tax bracket.

Portfolio structure matters, especially in retirement.

• Consider placing tax-inefficient investments (e.g., taxable bonds, high-turnover funds) in tax-advantaged accounts, such as IRAs or 401(k)s
• Put tax-efficient investments (e.g., ETFs, index funds, municipal bonds) into taxable brokerage accounts
• Potentially avoid unnecessary capital gains, manage your dividends and distributions, and use tax-loss harvesting to offset capital gains and reduce tax burden

Review periodically and coordinate your plan

A retirement portfolio is not "set it and forget it." Too many things can change year to year, so make sure to review your plan periodically and adjust it as needed.

Keep these priorities in mind when reviewing:

• Income changes
• Market shifts that can affect your portfolio
• New tax laws that can affect your lifestyle, taxation and withdrawals
• Health care cost adjustments
• RMDs and Social Security

Retirement tax planning should be geared toward reducing taxes and avoiding ugly surprises, helping ensure you keep more of what you've worked hard to build and save.

If you're nearing retirement or already retired, it's important to ask yourself: Am I heading toward a possible tax trap in my retirement?

The earlier you spot the tax trap, the easier it may be to avoid and ensure you can retire relaxed and happy.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Not long ago, a client came to me with what sounded like a simple question:
"Should I do a Roth conversion?"

It's a question I hear often — and it makes sense. Roth conversions are frequently recommended as a smart tax strategy for retirement.

But after walking through this client's situation together, it became clear that a Roth conversion might not have been the right move at that time.

That's an important reminder I share with many of my clients: A strategy that works well for someone else isn't automatically the right fit for you.

What exactly Is a Roth conversion?

A Roth conversion simply means moving money from a traditional IRA or 401(k) (where contributions were made pre-tax) into a Roth IRA (where withdrawals can be tax-free later).

When you convert funds, you pay income taxes on the amount converted now in exchange for potential tax-free growth and withdrawals in the future.

For many people, this can be a powerful long-term planning strategy — but timing and circumstances matter.

Why a Roth conversion didn't make sense in this case

In this client's situation, their primary source of retirement income was going to be withdrawals from their IRA, and retirement was only a few years away.

When you convert funds into a Roth account, a five-year rule applies. Generally speaking, you need to wait five years before withdrawing converted funds to avoid additional taxes.

Since this client expected to rely on those assets sooner than that, the primary benefit of converting simply wasn't going to apply.

In other words, the strategy sounded appealing on the surface, but it didn't support their real-world retirement timeline.

Why timing matters

For many investors, Roth conversions can be extremely valuable. Yes, you pay taxes at the time of conversion, but once the money is inside a Roth account, it can grow tax-free and be withdrawn tax-free in retirement.

Roth IRAs are also not subject to required minimum distributions, which can make them a powerful planning tool for both retirement income flexibility and legacy planning.

Still, there are several situations where it makes sense to pause before converting.

1. You're currently in a higher tax bracket.

Every dollar converted is treated as ordinary income in the year of the conversion. If your income is already near the top of your tax bracket, converting could push part of that income into a higher bracket.

Sometimes, waiting for a lower-income year can make the strategy far more efficient.

2. You would need to use retirement funds to pay the conversion taxes.

Ideally, taxes on a conversion should be paid from savings outside the retirement account. Using retirement assets to cover the tax bill reduces the amount working for you long term and weakens the overall benefit of the strategy.

3. Your income may drop in the near future.

If you expect retirement, reduced work hours or another life transition that lowers income, it may make sense to delay conversion until you're in a lower bracket.

Timing can be just as important as the decision itself.

4. The conversion could increase your Medicare premiums.

Medicare Part B and Part D premiums are based on taxable income. Because conversions increase income in the year they occur, they can sometimes trigger higher premiums.

This doesn't automatically rule out a conversion — but it's something worth planning around carefully.

Sometimes the smartest strategy is a gradual approach

In many cases, spreading conversions over several years can reduce the tax impact and create a more efficient outcome overall.

Rather than asking "Should I convert?", the better question is often: "How much should I convert — and when?"

That's where personalized planning really makes a difference.

Roth conversions are powerful — but personal

It's easy to hear about a friend, neighbor or coworker who completed a Roth conversion and assume it's something you should do, too. But retirement planning works best when strategies are tailored to your specific income picture, timeline and goals.

Roth conversions can absolutely play an important role in a well-designed retirement plan. The key is making sure they're implemented thoughtfully and at the right time.

With the right guidance and a clear understanding of the trade-offs, they can become a valuable tool — not just a popular recommendation.

Ronnie Blair contributed to this article.

Advisory services offered through Woloshin Investment Management, LLC, an Investment Adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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• Are You Getting Vague Advice About Roth Conversions?
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The One Big Beautiful Bill Act (OBBBA) opens up several planning opportunities that could make a real difference in what you keep in your pocket — not just this year, but for years to come.

If you're like our clients, whom we call Midwestern Millionaires — hardworking, frugal and diligent savers with $1 million or more saved (I wrote a book on this that you can request here) — these are five of the most important provisions to understand for how they may affect your long-term tax strategy.

1. Lower tax rates aren't going away (for now)

One of the biggest concerns we hear from clients is whether today's historically low tax rates are about to disappear. Current legislation signals that lower marginal tax rates are likely here to stay longer than previously expected, at least for now.

This creates a great window of opportunity for both retirees and pre-retirees to execute strategies such as:

• Roth conversions
• Accelerating income into lower-tax years
• Capital gains planning

If tax rates continue to remain relatively low, planning proactively and implementing various planning strategies now can dramatically reduce your lifetime tax liability.

This is especially important for those with significant IRA balances and/or pensions that will increase their income in the future.

2. A higher standard deduction — and bonus deductions

The standard deduction has already simplified filing for millions of Americans, and the OBBBA has increased the already large standard deduction once again.

For many households, this means that itemizing deductions will become even less common. But with the OBBBA comes an additional bonus deduction opportunity on top.

Specifically, the law introduces an enhanced deduction of $6,000 for taxpayers aged 65 and older. This additional deduction phases out at higher income levels, so it's most impactful for retirees and near retirees in moderate-income ranges.

This makes it more crucial than ever to revisit your tax strategy each year, rather than assuming your situation remains the same.

For those in or approaching retirement, the potential savings here are too significant to overlook.

3. A new charitable deduction for non-itemizers

Historically, if you did not itemize your deductions, you likely have seen no benefit from any charitable giving you have done over the years, but the OBBBA has changed that.

The law introduces a charitable deduction that's specifically designed for non-itemizers, so you can finally see a tax benefit for the giving you're already doing, even if you elect to take the standard deduction.

Those who file married filing jointly can deduct up to $2,000, and those who are single can deduct up to $1,000.

4. An expanded SALT deduction

The state and local tax (SALT) deduction cap has been a sticking point for years, particularly for higher-income households and those in high-tax states.

The OBBBA has increased the deduction cap, potentially allowing taxpayers to deduct more of their:

• State and local income taxes
• Property taxes

While the impact will vary depending on where you live, this could be a meaningful change for those who have felt limited by the previous cap of $10,000.

For some households, it may even make itemizing deductions viable again, especially when combined with mortgage interest, medical expenses and charitable deductions.

5. Trump Accounts for newborns

One of the more unique provisions in the bill is the introduction of so-called Trump Accounts, which are tax-advantaged savings accounts established for newborns.

These accounts are designed to create a financial head start for future generations.

While details will continue to evolve, the broader theme is clear: Early investing is being incentivized.

For parents and grandparents alike, this could be a great thing to do for their children/grandchildren. To find out more and to sign up your newborn, visit www.trumpaccounts.gov.

The bigger picture: Opportunity requires action

Tax legislation always creates winners and losers, but more importantly, it creates planning opportunities. The common thread across all five of these tax changes is flexibility:

• Lower rates extend planning windows
• Higher deductions simplify filing while adding targeted benefits
• Expanded deductions and new account types create new ways to reduce taxes over time

But none of these matters without a strategy. The households that benefit most won't be the ones who simply react — they'll be the ones who proactively adjust how and when they recognize income, take deductions and plan for the next generation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A mega backdoor Roth IRA is one of the most powerful strategies available to high-income earners who want to maximize tax-advantaged retirement savings.

The name "mega backdoor Roth" sounds big and exciting, and it is. It is a way to get money into a Roth account, where it can grow tax-free and be withdrawn tax-free in retirement, once certain conditions are met.

To fully understand how a mega backdoor Roth IRA works, it helps to first look at its predecessor — the standard backdoor Roth IRA — and then explore how this enhanced version expands your retirement investment options.

A backdoor Roth IRA is a strategy designed for individuals whose income exceeds the limits for direct Roth IRA contributions. For example, if you are single and your income is higher than $153,000, you're not allowed to contribute to a Roth IRA. So if you're a high earner, then this article is for you.

So while high earners are restricted from contributing to a Roth IRA, the tax code allows a workaround with the backdoor Roth —you simply make an after-tax contribution to a traditional IRA and then convert those funds to a Roth IRA.

Because traditional IRAs do not have income limits for after-tax contributions, this process effectively bypasses the restrictions. That is the magic of this strategy.

Here is a short example comparing two high-earning investors, Alex and Sam, to show the long-term benefit.

The scenario (20-year horizon)

Both Alex and Sam have an extra $7,500 (the 2026 contribution limit for an IRA) to invest each year. Both are in a 24% tax bracket and expect to stay there in retirement.

• Alex invests in a standard taxable brokerage account
• Sam uses the backdoor Roth IRA strategy

Why Sam wins

Even though they both invested the same amount of money in the same funds, Sam ends up with roughly $52,000 more after 20 years. This is why:

• Elimination of "tax drag." In Alex's taxable account, a portion of the returns is "chipped away" every year by taxes on dividends and rebalancing. Sam's money compounds in total.
• The "never taxed again" perk. Once Sam moves the money into the Roth, those dollars — and all their future growth — are legally invisible to the IRS. Alex will eventually owe a significant chunk of his $214,000 to the government when he decides to spend it.
• No RMDs. Unlike a traditional IRA, Sam is never forced to take money out. He can let it grow for his entire life or pass it to heirs tax-free.

If you want to follow Sam's lead, the process is a simple "two-step":

• Contribute $7,500 to a traditional IRA (mark it as "nondeductible")
• Convert that money to your Roth IRA immediately

Where things get complicated

The backdoor Roth IRA can be tax-free if executed correctly. If all the funds in your traditional IRA consist of after-tax contributions, converting them to a Roth IRA does not trigger additional taxes.

However, things become more complicated if you also hold pretax funds in your traditional IRA. In that case, the IRS applies what is known as the pro-rata rule, which determines how much of the conversion is taxable.

This rule can create unexpected tax consequences, making it important to work with a financial planner to do this correctly.

While the backdoor Roth IRA is useful, it is limited by annual IRA contribution limits: $7,500 in 2026, or $8,600 for those age 50 and older.

For high earners who want to save more aggressively, the mega backdoor Roth IRA could be the answer.

Higher contribution limits

The mega backdoor Roth IRA takes advantage of higher contribution limits within a 401(k) plan.

Unlike IRAs, 401(k)s allow significantly larger total contributions when combining employee deferrals, employer matches and additional after-tax contributions.

In 2026, the elective deferral limit is $24,500, with higher limits for older workers due to catch-up contributions.

More importantly, the total contribution limit in 2026, including employer and employee contributions, can reach as high as $72,000, or even more per year for those eligible for catch-up provisions.

Just think of that. After just a short 10 years, you could stash away $720,000 for retirement, and after just 20 years, you could stash away more than $1.4 million.

After maxing out standard 401(k) contributions and receiving any employer match, some plans allow participants to contribute additional after-tax dollars.

These are not Roth contributions, but rather a separate category of after-tax funds. If the plan permits, those after-tax contributions can then be converted into a Roth IRA or a Roth 401(k). This conversion is the "mega backdoor" step.

When done correctly, the after-tax contributions themselves can be converted without paying additional taxes, since taxes have already been paid on that money. However, any earnings generated before the conversion may be taxable.

For this reason, it is important to time this properly with the help of a financial adviser. You should convert these funds as quickly as possible to minimize or avoid taxable gains.

The appeal is the scale

The appeal of the mega backdoor Roth IRA lies in its scale. Instead of being limited to a few thousand dollars per year, you may be able to move tens of thousands of dollars annually into a Roth account.

Over time, this can dramatically increase the amount of tax-free income you will have in retirement.

Additionally, Roth IRAs are not subject to required minimum distributions (RMDs) during the account holder's lifetime, offering greater flexibility and estate planning advantages.

If you want to, you can just let all that money sit in your mega backdoor Roth and grow bigger and bigger and bigger every year.

If your financial planner also has an insurance license, like I do, you can even put that money in a high-quality annuity that is guaranteed to never lose value and that can also provide you with a guaranteed lifetime income.

Not all 401(k) plans allow the use of this strategy. To find out if yours does, you can set up a free meeting with me, and we can talk about it.

Common mistakes to avoid

Don't try to do a mega backdoor Roth on your own. Mistakes can cost you thousands, or even tens of thousands, of dollars in extra taxes. Considering working with a CERTIFIED FINANCIAL PLANNER® (CFP®).

Here are some common mistakes that do-it-yourselfers make:

• Waiting too long to convert after-tax contributions, which can create earnings that become taxable
• Confusing or mixing up pretax contributions, Roth contributions and after-tax contributions, which are each treated differently for tax purposes.
• Making mistakes when handling rollovers. Improperly mixing pretax and after-tax funds during a rollover can create tax headaches
• Don't exceed IRA or 401(k) contribution limits. Because the total 401(k) limit includes employee contributions, employer matches and after-tax contributions, it is easy to get confused and exceed the contribution limits if you are not tracking everything carefully. Overcontributing can result in severe penalties.

The mega backdoor Roth IRA is a sophisticated strategy that offers substantial rewards for those who use it effectively. It enables high earners to enjoy both tax-free growth but also tax-free withdrawals.

By working with a skilled financial planner who is also a fiduciary, you can take full advantage of one of the most generous opportunities in the retirement savings universe.

Related Content

• How a Backdoor Roth IRA Works (and Its Drawbacks)
• Five Ways to Catch Up on Retirement Savings
• Roth or Traditional? Seven Considerations for High Earners
• 5 Legal 'Loopholes' the IRS Wishes You Didn't Know
• The 2026 Retirement Catch-Up Curveball: What High Earners 50 and Older Need to Know Now

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The stock market is sitting on a knife-edge, and interest rates are still top of mind, which has investors wondering what the Federal Reserve will do next.

Add in tax season being fresh in everyone's minds, and it's no surprise that many people are thinking about their retirement accounts and asking themselves: What should I be doing with my money?

While most people focus on getting their taxes filed or making that last-minute IRA contribution, this is also the perfect time to step back and look at the bigger picture. Are you contributing strategically, or are you just checking the box because you know you "should"?

For many investors, another timely question comes up: Should you consider a Roth conversion?

The buzz around Roth conversions

Roth conversions have become one of the hottest financial buzzwords in recent years. But like most trends or fads, they're often misunderstood.

In the simplest terms, a Roth conversion is when you move money from a tax-deferred account such as a traditional IRA or 401(k) into a Roth IRA. When you do this, you pay income tax on the converted amount immediately, but future withdrawals in retirement become completely tax-free.

That sounds great in theory, but it's not a one-size-fits-all solution. Deciding whether a conversion makes sense depends on several factors:

• Your current income and tax bracket
• How long until you retire
• Your ability to cover the tax bill
• Your long-term goals

The good news is that whether you're looking for tax-free income in retirement or want to leave a legacy, there are tools available to help make this decision a little clearer.

Financial advisers can run detailed reports showing the long-term benefits and trade-offs of doing a conversion, helping you see whether the numbers make sense for your specific situation.

All or nothing? Not quite

One of the biggest misconceptions about Roth conversions is that you must move all your retirement money at once. In most cases, that's not advisable. Converting everything in a single year could trigger a huge tax bill and bump you into a higher income bracket.

Instead, many people choose to convert a portion of their traditional IRA or 401(k) over several years. This allows you to stay within a target tax bracket and better manage your tax situation.

Others use conversions as part of legacy planning, converting over five to seven years so that the money they pass on to children, grandchildren or charities is tax-free.

In other words, it's not about doing it all — it's about finding the right amount to convert at the right time.

When conversions make sense (and when they don't)

Roth conversions can be a powerful tool, but they aren't right for everyone. They typically make sense for people who:

• Expect their taxes to rise in the future
• Have enough savings to pay the tax bill
• Are in or nearing retirement and want to reduce future taxable income

On the other hand, conversions often don't make sense for high earners who are already paying a top tax rate. For example, if you're earning $500,000 a year, converting your IRA might add to your taxable income without providing any real benefit. In some cases, a conversion might cost more than it would save.

What about younger investors?

For younger savers or people who've recently changed jobs, the idea of converting old 401(k) accounts to a Roth IRA can be appealing. But the decision depends on whether you have the cash available to pay the taxes now.

A smarter move would be opening a Roth IRA directly and starting to fund it as early as possible. Investing just $20 a day would be enough to max out your annual contribution limit of $7,500.

If you stick with it and invest steadily (say, in a diversified index fund such as the S&P 500), that money could grow to more than $1 million over a 40-year career — and all of it would be tax-free when you retire.

That's an incredible opportunity for anyone in their 20s or 30s, and one that's far easier to achieve than people think.

More than just income taxes: How Medicare complicates conversions

Roth conversions are not just about income taxes. They can also affect your future healthcare costs.

When you hit retirement age and enroll in Medicare, your Part B and D premiums are based on your modified adjusted gross income from the two years prior to enrollment. Large withdrawals from a traditional IRA or 401(k) can increase your income and, with it, your Medicare premiums.

By converting some of your traditional retirement savings to a Roth earlier in life, you might be able to reduce your taxable income later and avoid those higher costs. It's one of those planning details that often gets overlooked, until it's too late.

Balancing buzzwords from real-life planning

Social media and financial blogs make it sound as if everyone should be doing Roth conversions, so it's easy to get caught up in the excitement. Who wouldn't want tax-free income later in life? But the reality is life isn't that simple.

With another tax season complete, now is the time to look at your retirement strategy from a fresh perspective.

• Do you have a plan for where your money is going?
• Should you open a Roth or convert part of your IRA?
• How will today's decisions affect your tax picture years from now?

Roth conversions can be an incredible tool for building tax-free wealth and protecting your future income, but they're not for everyone or for every situation. The right approach should take into account your income needs, goals and time horizon.

The most important thing you can do is make an informed decision, not an emotional or impulsive one driven by social posts and headlines.

Related Content

• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• 8 Factors to Consider When Considering a Roth Conversion
• Should You Jump on the Roth Conversion Bandwagon? A Financial Adviser Weighs In
• Your 401(k) Is Sitting Pretty Right Now: It Could Be Time to Rethink Your Strategy
• 4 Pro Tips for Successfully Scaling the Medicare Mountain

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Most of us know the power of compound interest, often followed by the wish that we had started saving and investing decades earlier. By opening a custodial Roth IRA for a grandchild, you are giving them the one asset money usually can't buy: time. If your grandchild has a summer job or a part-time gig, they hold the 'golden ticket' of earned income needed to open an account. Matching their earnings today does more than teach the value of a dollar — it plants a seed that grows into a tax-free fortune by the time they reach their own retirement.

Roth IRA rules for 2026 allow for a generous contribution of up to $7,500, provided the amount doesn’t exceed the child’s total earnings. As you look at your estate planning and gifting strategies this year, consider sitting down with your grandchild to explain the magic of the "Roth match." It’s a conversation that can change the trajectory of their financial life — and a legacy that will continue to grow long after your initial gift has been made.

Here are the rules for opening and managing custodial Roth IRA accounts in 2026.

General custodial IRA rules

A custodial IRA is an effective way to jump-start a minor's retirement savings, leveraging decades of compound growth. The primary 'golden rule' is that the minor must have earned income, meaning wages, tips, or self-employment, to contribute. The minor isn't required to have a formal W-2. The money can come from babysitting, dog walking, mowing lawns, or any other odd job.

If your grandchild is self-employed, be sure they keep detailed records of the work performed, the dates worked and payments earned. The IRS will require documentation of earned income if it ever audits the account's eligibility.

The IRS doesn't have a minimum age requirement for having a custodial Roth IRA. As such, even very young children can have a custodial Roth IRA as long as they meet the earned income criteria.

• Ownership and control: A custodial account is opened under the minor's name and Social Security number, but an adult (the custodian) manages the investments until the minor reaches the "age of majority," usually 18 -25, depending on the state.
• Contribution limits: For 2026, the IRA contribution limit is $7,500 (in line with overall contribution limits) or the total of the minor’s earned income for the year, whichever is less. For instance, if a child earns $2,000 babysitting, the maximum contribution allowed is $2,000.
• Funding sources: While the minor must have earned income to qualify, the money doesn't have to come from their paycheck. A parent or grandparent can "match" the child's earnings by gifting the contribution, provided it doesn't exceed the child's earnings.
• Transition: Once the minor reaches the legal age in their state, the account must be converted to a standard (non-custodial) IRA in their name alone.

How to set up a custodial Roth IRA

Setting up a custodial Roth IRA is a straightforward process. You'll need your grandchild's Social Security number to open the account, and while many providers have no minimum balance requirements, be sure to check the fine print for account fees, fund expenses and brokerage commissions before committing.

• Choose a provider: Find a reputable financial institution that offers custodial Roth IRAs. Pick one with low fees and diverse investment options. 
• Gather documents: You’ll need your grandchild’s Social Security number, proof of earned income, and identification for both the custodian (you) and the minor (grandchild). 
• Open the account: Depending on the institution, you can complete the application online or in person, designating the custodian and minor. 
• Fund the account: Lastly, make contributions based on the child’s earned income.

Contribution deadline: It's the same as if you were the account beneficiary. You can make contributions up to April 15 of the following calendar year. Contributions for the 2026 tax year can be made up until April 15, 2027.

Why a Roth IRA is usually preferred for minors

For most kids, a Roth IRA is the clear winner vs. a traditional IRA for two reasons:

• Low tax bracket: Since most minors earn very little, the tax deduction of a traditional IRA has little value. It is better to pay the small amount of tax owed now (in a 0% or 10% tax bracket) to ensure any growth in the account is entirely tax-free later.
• Education/home flexibility: While these are designed for retirement, Roth IRAs have flexibility: you can withdraw earnings penalty-free for qualified education expenses or up to $10,000 for a first-time home purchase (assuming the account has been open for 5 years).

Why a custodial Roth IRA makes sense

Opening a custodial IRA for a grandchild is a savvy move that combines estate planning with a massive head start on wealth building. For grandparents, it’s often more efficient than a traditional savings account or even a 529 plan, depending on the goal. For grandchildren, it can be invaluable, especially if they graduate from college during a bad economy.

The modern workforce is very different than what baby boomers experienced. Gen Z is expected to hold up to 17 jobs across 7 different careers, while millennials are anticipated to change jobs every three years. Changing jobs frequently can cut into retirement savings. "The median job switcher sees a 10% increase in pay but a 0.7 percentage point decline in their retirement saving rate when they switch employers," according to Vanguard.

"Having money already invested and growing can make a future change less painful in terms of both the emotion and the math," Michael Conrath, Chief Retirement Strategist at J.P. Morgan Asset Management, told Kiplinger.

He noted that one benefit of the custodial IRA is that it won't lose ground when times are tough "...starting early can help hedge against a future 'what-if' scenario — such as a job loss or unexpected expense — that could cause someone to cut back on contributions."

Here are five reasons why a custodial IRA is such a powerful tool for grandparents to give to their grandkids:

1. The "multiplier effect" of time

The most compelling reason is the sheer length of the "compounding runway." A grandchild has 50+ years for that money to grow before retirement.

• The Math: A single $2,000 contribution made when a grandchild is 15 could grow to over $65,000 by the time they are 65 (50 years assuming a 7% average return).
• By "matching" your grandchild’s summer job earnings, you aren't just giving them cash; you are giving them a future fortune that they likely couldn't fund on their own.

2. Estate planning and tax efficiency

Contributing to a custodial IRA helps you move assets out of your estate while ensuring the money is used productively.

• Gift tax exclusion: In 2026, the annual gift tax exclusion is $19,000 per recipient ($38,000 for married couples). Since the maximum IRA contribution is $7,500, your gift will fall well within these limits, requiring no IRS paperwork and leaving your lifetime exemption untouched.
• Generation-skipping efficiency: A custodial IRA is a direct way to transfer wealth to a grandchild (known technically as a 'skip person') by putting it immediately into a tax-sheltered account. Unlike a standard brokerage account, where taxes on dividends and capital gains drag on growth, the assets in this account are protected from that 'tax drag.'

3. Financial "incentive" (The matching strategy)

Many grandparents use the custodial IRA as a teaching tool by matching what the grandchild earns. This rewards their work ethic while introducing them to the concepts of investing and compound interest early on.

The Pitch: "For every dollar you earn as a lifeguard at the pool this summer and save, I will put an equal amount into your Roth IRA."

This is critical as the world grows more complicated and expensive. "People with higher financial literacy have more wealth not just because they are able to plan and save more but also because they get better returns on their savings, even via basic financial instruments." Better financial literacy is also linked to stock market participation, portfolio diversification, portfolio returns and retirement saving behavior, according to a recent study.

4. Better flexibility than a 529 plan

While 529 plans are great for college, they can be restrictive if the child gets a full scholarship or decides not to attend university.

• Roth IRA versatility: With a custodial Roth IRA, the original contributions can be withdrawn at any time, for any reason, penalty-free.
• Flexibility: After five years, your grandchild will be allowed to withdraw up to $10,000 in earnings tax- and penalty-free to use for a first-time home purchase. It’s a powerful 'first-home' fund and a retirement fund rolled into one.

Once the money has been deposited, you should encourage your grandchild and his/her parents to let it grow. "While there are exceptions that allow for early withdrawals free of penalties or taxes, the custodial Roth’s primary purpose should be to jump-start retirement savings for young earners," said Conrath. This factor reminds parents and grandparents that the real benefit comes over time, as it's "not just about the early start or ongoing contributions, but it’s also important to remember that those funds grow tax deferred and compound over years or decades."

5. Minimal impact on financial aid

Assets held in a retirement account (like an IRA) are generally not counted as "available assets" on the FAFSA (Free Application for Federal Student Aid). This means your gift to your grandchild's future retirement likely won't hurt their eligibility for college grants or loans. However, a standard savings or brokerage account in the child's name would be heavily weighted against them.

While a custodial Roth IRA balance won't impact financial aid eligibility, distributions from the accounts will be counted, Conrath said.

"That same preferential treatment applies to the parents’ retirement accounts as well. This means that during the accumulation or growth phase, the IRA won’t adversely impact federal financial aid," Conrath said.

A financial head start

If you’re looking for a way to reward a grandchild’s work ethic while making a meaningful impact on their financial future, the custodial Roth IRA is a tool you can’t ignore. Unlike a standard savings account, this strategy allows you to 'match' their hard-earned wages, effectively doubling their efforts while sheltering the growth from the IRS. It is a powerful way to transfer wealth that prioritizes self-reliance and long-term security over immediate spending.

While we often think of IRAs strictly for retirement, the beauty of the custodial Roth lies in its flexibility. Whether the funds eventually help your grandchild buy a first home, pay for graduate school, or have a more secure retirement 50 years down the line, you are providing a versatile financial foundation. By acting now, you ensure that every lawn mowed or shift worked this year becomes a permanent building block in your grandchild's future wealth.

Related Content

• Roth IRAs: What They Are and How They Work
• Gift Like Buffett: Three Financial Gifts for Kids and Grandkids
• How — and Why — to Give to Your Grandkids

To Roth, or not to Roth? That's the question facing millions of retirees and pre-retirees this year.

For many, a Roth conversion is a great way to defuse the 'tax bomb' of future Required Minimum Distributions (RMDs). But paying taxes upfront is a bad deal if the strategy doesn't fit your long-term goals. If you're currently debating a conversion, start by asking yourself these three questions to make sure you're making a choice that will save you money in the long run.

While there are pros to having your retirement savings in a Roth IRA — tax-free withdrawals in retirement, the elimination of future RMDs, and tax-free inheritance for your beneficiaries, sometimes having it in a traditional account is better. That's particularly true if you're a high earner and want to lower your income bracket, or you can't afford the tax hit from converting to a Roth.

It's a conundrum lots of people wrestle with. Timing is everything when it comes to a Roth conversion. If the conversion pushes you into a higher tax bracket, you might not only have to pay Uncle Sam more money, but you could see an impact on your retirement benefits, such as Medicare and Social Security.

But a conversion can also be a boon, as it can mean tax-free growth and withdrawals later on. "Ultimately, it's about when you choose to pay taxes: now or later," says Deryck Gryne, a certified retirement counselor at Ally Invest. "It’s about flexibility and tax diversification."

If you're thinking that paying taxes now through a Roth conversion might be the better option, ask yourself these three questions first before you make a move.

1. Will my tax rate likely be higher in the future?

When it comes to converting to a Roth, this is the foundation of the decision, says Gryne. That's because the money you withdraw from your traditional retirement account to convert to a Roth is added to your modified adjusted gross income (MAGI) for the year.

If you're in a low-income bracket, then it might be a non-issue, but if the additional income pushes you into a higher tax bracket, the conversion could create a host of problems beyond paying more in taxes.

Depending on your MAGI, the conversion might trigger the Income-Related Monthly Adjustment Amount, or IRMAA. The IRMAA is an extra charge added to the monthly premiums for Medicare Part B and Part D if your MAGI from the two years prior exceeds certain limits. Because IRMAA is a two-year look-back, a 2026 conversion could affect your 2028 Medicare premiums. Plus, a conversion might mean you have to pay more taxes on your Social Security payments.

By the time you are in your mid-50s, you have likely hit your highest career tax bracket. During these peak earning years, it might be smarter to keep the money in traditional retirement accounts to lower your income and current tax bill. Converting to a Roth at this stage basically forces you to pay the highest possible tax rate on that money.

Pro tip: If you are doing a Roth conversion, Greg Welborn, principal and president of First Financial Consulting, says to fill up your tax bracket.

"Don't be concerned about the 10% and 12% bracket, but be concerned about the 12% and the 22% bracket," he says. You should aim to convert just enough to hit the top of your current bracket without any money spilling over and pushing you into higher tax territory.

2. Can I afford the tax bill without using retirement funds?

When doing a Roth conversion, the money you withdraw from your traditional retirement account is treated as ordinary income, which means you must pay taxes on it.

If you can't afford those taxes without using money in your retirement account, then you might want to rethink the conversion. After all, if you withdraw money from the account, it lowers your balance, which means less capital to grow and compound.

Plus, if you are under 59½ and have taxes withheld directly from your IRA during the conversion, the IRS will consider that an early withdrawal and slap a 10% penalty on the amount taken out for taxes.

"The mathematics of conversion improves dramatically when you cover the taxes from taxable resources rather than withholding from the converted amount," says Brad Coyle Jr., partner, managing director at Steward Partners.

Pro tip: To maximize the benefit of a conversion, Coyle says to make sure you have sufficient liquid, after-tax assets to fund any tax liability without creating a cash flow strain or forcing you to liquidate positions at inopportune times.

This is particularly risky if the market declines early in your retirement, as every dollar you withdraw has twice the negative impact over time. This is known as sequence-of-returns risk: By selling when the market is low, you're cashing out your savings faster than they can recover. Without that higher nest egg in place, your savings won't be able to benefit as much from an eventual market rebound.

"Don't let the tax tail wag the dog," Coyle says.

3. Do I know what I'm going to do with the money?

Converting to a Roth is one thing, but what you plan to do with that money is equally important. If you don't allocate it properly, you could miss the whole purpose of the conversion — tax-free growth, says Welborn.

"We find too few people are being strategic with their asset allocation," says Welborn. "They either have a bunch of accounts all over the place with random allocations, or they have the same allocation for every account. Having the same asset allocation for a taxable IRA and a Roth doesn't make sense."

The Roth should be the last place you withdraw money from, he says.

Pro tip: Since withdrawals from your Roth will be tax-free, Welborn says your allocation, while diversified, should be more aggressive in your Roth than in a taxable one. "The Roth should be positioned for the greatest amount of growth," he says.

Seek the help of a trusted adviser

Deciding if and when to convert to a Roth is complicated. While these three questions can steer you in the right direction, a trusted financial adviser can provide the precise modeling needed to make a final decision.

In 2026, the tax landscape is more nuanced than ever, and a move that saves you money in one area could inadvertently affect your Medicare premiums or Social Security benefits in another.

Everyone’s situation is different, and what works for you might not work for someone else. Remember that you worked hard to amass your retirement nest egg. You'll eventually have to pay the tax man; the only question is whether you choose to do it now or later.

Related content

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• 3 Questions That Reveal if You’re Actually Ready to Age in Place
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• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA

A Roth IRA is a powerful account:

• Qualified withdrawals can be tax-free
• There are no required minimum distributions (RMDs) during the owner's lifetime
• The account can be a flexible part of retirement and legacy planning

That power can create a common mistake. People treat the Roth as a "best account," then put everything into it.

In reality, Roth space is limited. A better approach is to think in terms of asset location, which is placing different investments in the account types in which they are most efficient.

This is not an all-or-nothing list. These are categories often better outside a Roth IRA, depending on your household's goals, tax picture and time horizon.

1. Municipal bonds

Municipal bonds are generally designed to deliver tax-advantaged interest in a taxable account. Putting them in a Roth often adds little benefit, since the interest was already structured to be tax efficient.

In many cases, using Roth space for an asset that's already tax-advantaged creates an opportunity cost. Roth dollars are scarce, so they're often reserved for assets in which tax-free growth has the biggest impact over time.

2. Highly speculative individual positions

If a concentrated, high-risk position goes to zero inside a Roth, the loss is not just the dollars; you also lose the limited Roth contribution "space" that created the tax-free compounding opportunity in the first place.

For those who want a small speculative sleeve, many investors prefer keeping it in taxable accounts where losses may be used for tax purposes.

A related issue is behavioral. Speculative positions tend to invite frequent monitoring and reactive decisions. That pattern can be especially harmful in a Roth, where the long-term benefit is compounded growth.

3. Assets you may need before age 59½

Roth contributions can be withdrawn without tax or penalty, but the rules around early withdrawals of earnings can be complex and restrictive.

If the goal is flexibility for a goal that might happen before retirement age, a taxable account can be a better fit for at least part of that money.

In practical terms, this category includes down-payment funds, a potential business investment or any goal with an uncertain timeline.

The goal is not to avoid the Roth entirely. The goal is to avoid putting "short-horizon money" into a structure designed for long-horizon compounding.

4. Investments that are likely to generate meaningful losses

Tax-loss harvesting works only in taxable accounts. Losses inside retirement accounts generally don't provide the same tax benefit.

If you're intentionally holding a higher-volatility strategy in which losses are a real possibility, you may want that position in an account in which losses can potentially be used.

This is most relevant when the risk is not incidental. If the strategy assumes meaningful drawdowns or uses a concentrated approach, it may be worth asking whether the Roth is the right home.

5. Appreciated assets you plan to donate

Donating appreciated securities from a taxable account is often a highly tax-efficient way to give. The core benefit is avoiding capital gains taxes on the appreciation.

Since Roth assets are already in a tax-advantaged wrapper, they generally do not create the same giving advantage.

If charitable giving is part of the plan, it can be helpful to intentionally "build" future donation positions in taxable accounts, rather than accidentally giving from whatever happens to be easiest to sell.

6. Highly tax-efficient index funds and ETFs

Many broad index funds and ETFs are already designed to be tax-efficient, which is part of what makes them strong candidates for taxable accounts.

If you're deciding where to place assets, Roth space is often best reserved for holdings in which tax-free growth provides a larger advantage.

This point is often misunderstood. It doesn't mean index funds are "bad" in a Roth. It means index funds usually don't need a Roth to be efficient. That distinction matters when contribution limits force tradeoffs.

7. Illiquid or complex alternative investments

Some alternative investments can involve high fees, valuation complexity and liquidity constraints. They can also introduce rules risk if held improperly in a retirement account.

Even when the potential upside is attractive, the operational risk and the lack of flexibility may make these a better fit outside a Roth for many households.

This category can also create planning headaches later. If an investment can't be easily valued or liquidated, it can complicate rebalancing decisions and future distribution planning.

The bottom line

A Roth IRA is valuable precisely because it's scarce. The goal is not to avoid any asset category completely.

The goal is to place each asset where it is most tax-efficient and most practical, while keeping the overall portfolio diversified and aligned with the household's plan.

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• 5 Smart Strategies to Create Your Retirement Paycheck Without the Stress
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As a financial adviser, I often meet investors who are confused about Roth conversions.

They get bounced between a certified public accountant (CPA) and a financial planner, each deferring to the other on whether converting a traditional IRA to a Roth makes sense.

The result is that there is no clear direction on a crucial decision.

This siloed approach leads to half-baked recommendations.

I've heard advisers say, "Sure, convert $20,000," or the opposite, "No, don't bother," with little analysis. These answers usually consider only the immediate tax hit and ignore other factors.

A Roth conversion can affect your Medicare premiums, trigger additional taxes or alter your estate plan. Any advice that overlooks these implications is incomplete.

Why do many advisers avoid detailed Roth advice? It's complicated. Most advisers aren't trained for in-depth tax planning, and many CPAs focus on last year's taxes rather than future projections.

It's easier to give a quick yes-or-no answer than to crunch all the numbers. But without doing the math, you're essentially flying blind.

A real-world example of what's missing

Here's a common example: A couple in their late 60s has about $500,000 in a traditional IRA. A previous adviser has already reviewed their Roth conversions and told them that it wouldn't really make a difference.

On the surface, this advice seems reasonable. Whether they convert now or take required minimum distributions (RMDs) later, the total income tax looks about the same.

But that conclusion only tells part of the story.

When we step back and do a deeper review, several important costs have been left out of the equation.

For one, larger IRA withdrawals can push income high enough to trigger higher Medicare Part B and Part D premiums, known as the IRMAA. Those increases don't show up on a tax return, but they absolutely affect a retiree's cash flow.

Then there's the issue of required minimum distributions (RMDs). The couple doesn't need all the money they'd be forced to withdraw. That excess would likely end up in a taxable account, creating a new layer of taxes each year on interest, dividends and investment gains.

Finally, we would look at what would happen down the road. Any money left in the couple's traditional IRA would eventually go to their children, along with a tax bill. In contrast, assets moved to a Roth IRA could be inherited tax-free, which could make a meaningful difference to their family.

Once we put all of those pieces together, the picture changes. Converting part of the IRA now means paying a single, known tax bill. Doing nothing means facing several smaller, less obvious taxes over time: Higher Medicare costs, ongoing investment taxes and a potentially large tax burden for their heirs.

With the full analysis in front of them, the couple can choose a carefully planned Roth conversion, confident that it will reduce their total tax exposure and better support their long-term family goals.

Get a comprehensive plan in writing

This example shows that Roth conversions have many moving parts. You need a holistic plan that examines all the angles, ideally documented in writing, so you can review it.

If an adviser gives you a yes-or-no answer on a conversion without a thorough written analysis, it's a red flag.

You deserve to see the numbers behind the advice.

Every Roth conversion recommendation I make comes with a detailed tax projection. I run scenarios to see the ways in which different conversion amounts would impact not just your current tax bill, but also future Medicare costs, investment taxes, RMDs and even what your heirs might owe.

It's work-intensive, but it's the only way to get a reliable answer. This thorough approach ensures that all the angles are covered, not just one.

How can you make sure you're getting this level of analysis? Ask your adviser if you can get a model Roth conversion in writing.

If they can't or won't provide one, consider seeking a second opinion from someone who will. The goal is to have all the facts before you decide, so there are no surprises later.

Focus on the 'who,' not the 'how'

Focus on the "who," not the "how." You don't need to become a tax expert to figure out Roth conversions. You need the right expert who can guide you.

Rather than trying to learn every tax rule yourself, ask, "Who has the expertise to handle this for me?"

For Roth conversions, that "who" could be an adviser with advanced tax training (for example, a Certified Tax Specialist) or a team that includes a CPA. Once you find that person, they'll handle the "how" and give you a clear plan.

Don't settle for vague advice on a Roth conversion. Find an adviser who will crunch the numbers and show you the complete picture.

By focusing on the right "who," you'll get the right strategy — one that's grounded in solid analysis and tailored to your goals.

Ezra Byer contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Software stocks are getting annihilated so far this year. That is my highly technical description of companies, like Salesforce and others, many of which are down more than 50% from their highs.

The opinion or theory of some: AI is going to make these exorbitant subscriptions unnecessary. I am not naïve enough to think I will be the last man standing as robots power the global economy and my friends have all involuntarily "retired."

But there is one thing that gives me hope about my job security — the never-ending, mind-boggling changes to the Internal Revenue Code.

In this article, I will cover four recent developments that have come about as a result of the OBBBA and SECURE 2.0. Most of the One Big Beautiful Bill went into effect in 2025. SECURE 2.0 was written to roll out in stages, and some provisions will begin in 2026.

1. Enhanced deduction for older people

What is it? This essentially adds a $6,000 deduction for every taxpayer 65 or older. It can add to your itemized deductions or to your standard deduction.

The major catches? It has an income phaseout that starts at $75,000 for individual filers and $150,000 for joint filers.

The deduction is temporary. It will "sunset" (Washington's fancy term for "expire," meaning that it may go away but just as likely change or stay the same and hopefully keep me employed) on December 31, 2028.

What does it mean for planning? Think of this as a small three-year tax sale for those 65 and wiser. It is especially advantageous for those who are either in their peak earnings years or in their lowest tax years. I know, those two things sound at odds. Hear me out.

In your peak earnings years, this deduction will lessen the blow and, all else being equal, should result in less tax due from 2025 through 2029.

If you are between retirement and claiming Social Security and taking required minimum distributions (RMDs), your taxes have likely dropped.

This will drive your taxes even lower, which provides more opportunity to reduce or even eliminate capital gains taxes as well as increase the opportunity for Roth conversions.

In the tax module of the financial planning software that we use, there are calibrations that will show the amount of room available each year to recognize capital gains or income before you jump into the next tax bracket.

We rely on this and our tax planning software heavily to recognize the long-term tax trends and do the associated calculations. You can access a free version of the financial planning software we use.

2. SALT cap expansion up to $40,400

What is it? SALT stands for "state income and local property taxes." These are deducted for those who itemize on a Schedule A. Starting in 2018, the deduction was capped. I live in an expensive city where I exceed that cap just with my property taxes.

People like me, often living on the coasts, hate the SALT cap. This change expands the cap for those making $500,000 or less from $10,000 to $40,000.

This expires one year later than the enhanced deduction for older people, on December 31, 2029.

What does it mean for planning? The benefits are similar to those of the enhanced deduction, but without the obvious age requirement. This will make the biggest difference for those in high-tax states.

Here's a complicated twist: Many states have yet to conform to the OBBBA, which means you may want professional help to figure out whether you should itemize or take the standard deduction. We will look for opportunities to convert to Roth IRAs and to recognize capital gains at low or no tax.

These next two are specifically for those who are near retirement.

3. Roth catch-up contributions

What are these? These had a delayed start date from SECURE 2.0. It starts this year, but is based on 2025 W-2 wages.

If your 2025 W-2 wages were more than $150,000 and you're age 50-plus, catch-up contributions must be made into the Roth component of your employer-based retirement plan.

What does this mean for planning? I don't like this one, because we are often seeking to maximize deductions for our clients near retirement.

In other words, I'd rather have my clients who are in their peak earnings years and, thus, peak tax years, delay recognizing income. When they retire, we recognize income via capital gains or Roth conversions.

This new rule means that we will be advising some of our clients to stop catching up and, instead, direct those savings into non-retirement accounts.

This will allow them to live off these funds when they retire and hopefully be able to get the money into a Roth via conversion at a lower rate than they would pay while working.

4. Extra catch-up contributions

What are these? If you are between 60 and 63, your catch-up contribution goes from $8,000 to $11,250. Therefore, folks who are in this bracket can contribute $35,750 each year to their employer plan.

If their previous year's wages were over $150,000, the $11,250 will have to go into the Roth component.

What does this mean for planning? This one is complicated because you must figure out how current tax rates compare to future tax rates.

Let's say you are in your peak earnings years, per my point on the Roth catch-up in number three. If so, you might not want to take advantage of this.

Let's say the flip side is true: You are scaling into retirement, and your earnings are low this year. In that case, you may want to put the entire $35,750 into the Roth.

The financial planning software mentioned earlier and/or tax planning software can help figure out what makes sense for you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Most of us assume our retirement savings are untouchable, but the law isn't always that simple. Depending on the type of IRA you own and/or how you inherited it, your "safe" money might actually be on the table for creditors. Take this 10-question quiz to see if your hard-earned savings are truly protected — or if you're sitting on a hidden risk.

Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on IRAs, from the Kiplinger team:

• Is Your IRA Protected from Creditors in Bankruptcy?
• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• The Average Retirement Savings by Age
• Roth IRAs: What They Are and How They Work
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026
• SEP IRA Contribution Limits for 2026

Roth conversions have become a popular topic in retirement discussions, and for good reason.

With concerns about future tax rates, required minimum distributions (RMDs) and the tax treatment of inherited retirement accounts, many investors are taking a closer look at whether converting traditional retirement assets to a Roth IRA makes sense.

At its core, a Roth conversion involves moving money from a traditional IRA or 401(k) into a Roth IRA and paying income taxes on the converted amount today.

In exchange, future growth and qualified withdrawals from the Roth account can be tax-free. While the concept is simple, deciding whether a Roth conversion is the right move requires careful analysis.

Why some retirees consider Roth conversions

One of the primary appeals of Roth IRAs is tax flexibility. Unlike traditional retirement accounts, Roth IRAs do not require minimum distributions during the account owner's lifetime. That allows retirees to control when and if they take withdrawals, which can be especially valuable when managing taxable income.

Roth accounts can also help reduce future tax exposure. Retirees who expect tax rates to rise, either due to legislative changes or increasing income later in retirement, may benefit from paying taxes now at a known rate.

In addition, Roth IRAs can be an effective legacy tool, since beneficiaries generally receive tax-free withdrawals, provided certain conditions are met.

For some, Roth conversions also offer a way to manage large balances in tax-deferred accounts. RMDs increase with age, and sizable withdrawals later in retirement can push income into higher tax brackets or affect the taxation of Social Security benefits.

Compare today's tax rate with tomorrow's. A practical starting point is comparing your current tax bracket with what you expect your tax situation to look like in the future. If your current income is temporarily lower, perhaps early in retirement or during a career transition, converting during those lower-income years may be advantageous.

On the other hand, converting large amounts while you are still earning peak income could result in paying higher taxes than necessary.

A thoughtful approach often involves partial conversions over multiple years rather than converting everything at once.

Understand how conversions affect other taxes. One detail retirees sometimes overlook is how a Roth conversion can affect other parts of their tax return. Increasing taxable income may impact the taxation of Social Security benefits or trigger higher Medicare premium surcharges.

Before moving forward, it is important to model how a conversion would affect total taxable income for the year. A conversion that looks attractive on paper could have unintended consequences if it pushes income across key thresholds.

Confirm you have the liquidity to pay the tax bill. Roth conversions require paying taxes on the converted amount in the year the conversion takes place. Ideally, those taxes should be paid using funds outside of the retirement account.

Using retirement assets to cover the tax bill reduces the amount that ultimately makes it into the Roth account and can diminish the long-term benefit of the strategy.

Retirees considering conversions should assess whether they have sufficient cash reserves or taxable assets to handle the tax obligation comfortably.

Consider timing and pacing. Many successful Roth conversion strategies are built gradually. Rather than converting a large balance all at once, some retirees convert smaller amounts each year to stay within a desired tax bracket.

This approach allows for greater control and flexibility. It also provides opportunities to adjust as tax laws, income needs or market conditions change.

Timing conversions during market downturns may also reduce the taxable value of the conversion, although this should not be the sole reason for moving forward.

What clients often overlook

Many people approach Roth conversions with enthusiasm after reading about the benefits, but without fully understanding the tradeoffs. One common misconception is that a Roth conversion automatically leads to lower taxes overall. In reality, the benefit depends on future tax rates, spending needs and how long the assets remain invested.

Another overlooked factor is time horizon. Roth conversions tend to be more effective when there is enough time for tax-free growth to offset the upfront tax cost. For retirees who expect to need the funds in the near term, the math may not work as favorably.

Married couples may also focus on the appeal of leaving tax-free assets to heirs without considering the annual cash flow needed to support ongoing conversions. Without adequate planning, even a well-intentioned strategy can strain household finances.

The bottom line

Roth conversions can be a powerful tool, but they are not right for everyone. The decision depends on a combination of current income, future tax expectations, available liquidity and long-term goals.

For retirees and pre-retirees, the most effective approach is often a coordinated one that looks at the full financial picture rather than focusing on a single strategy in isolation.

Taking the time to evaluate how a Roth conversion fits into your broader retirement income plan can help ensure that the decision supports both near-term stability and long-term flexibility.

Related Content

• Are Roth Conversions for Retirees Dead in 2026 Because of the New Tax Law?
• I'm a Financial Professional: This Is the Roth Conversion Mistake Too Many People Make
• Should You Convert a Traditional IRA to a Roth After 60?
• The $183,000 RMD Shock: Why Roth Conversions in Your 70s Can Be Risky
• 5 RMD Mistakes That Could Cost You Big-Time: Even Seasoned Retirees Slip Up

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

After a two-year "administrative transition period" provided by the IRS, one of the SECURE 2.0 Act's most talked-about provisions — the Roth catch-up mandate — is now the law of the land.

If you are 50 or older and a high earner, these rules fundamentally change how your "extra" retirement savings are taxed and reported. Making a mistake here doesn't just mean a missed savings opportunity; it could lead to unexpected tax bills.

Follow the links below to learn more about Roth 401(k)s and the new catch-up provisions and how they impact your retirement income.

More on Roth 401(k)s and catch-up rules:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• The 2026 Retirement Catch-Up Curveball: What High Earners 50 and Older Need to Know Now
• What to Do If You Plan to Make Catch-Up Contributions in 2026
• Roth 401(k) Contribution Limits for 2026
• Roth 401(k) vs 401(k): Which Is Right for You?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026
• Average IRA Balance by Age and Generation

Question: I'm retiring later this year at 67 with $2.6 million, most of which is in a traditional IRA. I'm worried about RMDs and taxes. What should I do?

Answer: As of 2022, the last year for which there's data available, the average 67-year-old retiree had about $609,000 in retirement savings, according to the Federal Reserve.

Moreover, retirement savers in their 60s only averaged $257,000 in their IRAs. If you're retiring later this year at age 67 with a $2.6 million IRA, you're clearly ahead of the game.

If that money is in a traditional IRA, though, you'll have to start taking required minimum distributions (RMDs) once you turn 73. While RMDs aren't guaranteed to be a problem, they could be if you find yourself in a situation in which you don't need the money.

Why does the IRS impose RMDs on traditional retirement plans? As Mark Steber, chief tax officer at Jackson Hewitt Tax Services, explains, "They want you to enjoy some of that money, but more importantly, they want the taxes from that money."

If you don't like the idea of facing RMDs in the future, there might be a way to largely get out of them. But it's important to proceed with caution.

Consider a Roth conversion carefully

If you don't want to deal with RMDs in retirement, the Roth conversion is a legitimate strategy, Steber says. The coming years might be an optimal time to do that conversion.

"If you're in that retirement income valley, and your income and tax rate go down substantially, that gives you the opportunity to take some of that retirement money and dump it into a Roth," he explains.

But, Steber says, you have to know what your total tax bracket is before rushing into Roth conversions. At age 67, you might be receiving Social Security or working a side hustle, both of which could affect your tax bracket. It's important to look at the big picture.

Robin Lovely, founder at The Women's Advisory Group, agrees that a Roth conversion could be a smart move in this situation. But she cautions against rushing into a major conversion at once.

"A series of smaller strategic conversions over the next few years could make more sense," she says. "The idea is to fill up your current tax bracket without spilling into the next one. That way, you reduce the size of your future RMDs and give yourself some tax-free income later on."

One drawback of doing a Roth conversion, whether in one fell swoop or over several years, is the potential to get hit with Medicare surcharges known as income-related monthly adjustment amounts, or IRMAAs. Because Roth conversions count as income, they could propel you into the IRMAA category in two years' time.

But Cody Garrett, owner and financial planner at Measure Twice Financial, says, "Some retirees worry about IRMAA when planning Roth conversions, but I don't let it rule the decision making. At any bracket, the IRMAA does not exceed 3% of household income based on modified adjusted gross income two years prior. It may be worth paying higher Medicare premiums for a few years to avoid higher tax rates and IRMAA for decades."

Don't put all of your money into a Roth

Timing Roth conversions strategically could let you off the hook from RMDs and associated taxes later in life while minimizing the tax blow in the near term. But Steber cautions not to move all your money into a Roth account.

"It is truly a best practice to have multiple types of retirement buckets," says Steber. That means maintaining a mix of traditional and Roth accounts.

"When you have multiple buckets, you have a lot more latitude for planning," he explains.

Steber points out that we don't know what tax breaks could come down the pike. There could be future tariff rebates or tax credits you can only qualify for if you have taxable income to report. As such, Steber says diversifying your retirement income is "a smart play."

Don't assume the worst if you're stuck with RMDs

A lot of people view RMDs as a negative in the context of retirement. But Garrett says, "With $2.6 million in a traditional IRA, RMDs may be meaningful, but they're not automatically catastrophic."

One thing to realize about RMDs is that they could serve as a green light to treat yourself to luxuries or a travel splurge you wouldn't otherwise spend money on. If you're charity-oriented, RMDs give you an opportunity to make qualified charitable distributions (QCDs) and support organizations that mean a lot to you.

There's nothing wrong with planning for RMDs and taking steps to reduce them in the future if you have a lot of money in a traditional retirement account, says Garrett.

At the same time, he says, "Please don't make Roth conversion decisions based on fear. There's often a temptation with large traditional retirement account balances to rush into aggressive Roth conversions. Slow down, take a breath, and unpack the comprehensive planning situation."

Read More

• I Waited Until 75 to Retire With $1.4 Million. Do I Have to Follow the 4% Rule, or Can I Take Larger Withdrawals?
• My $1.2 Million Vacation Home Has a $360K Mortgage. I Don't Need My Upcoming $45K RMD. Should I Use It to Pay Down the Mortgage?
• I Have to Take a $22,000 RMD by the End of the Year, and I Don't Need the Money. What Should I Do With It?

A Roth conversion can be a game-changer for your retirement, but it comes with a catch: the upfront tax hit. This brief quiz is designed to help you navigate that trade-off. By answering five key questions, you'll gain clarity on whether locking in today’s tax rates is a beneficial move for your specific financial situation.

Follow the links below to learn more about Roth conversions and how they impact your retirement income.

More on Roth IRAs and Conversions:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• Roth IRAs: What They Are and How They Work
• Want to Avoid the IRMAA? Consider a Roth Conversion
• Should You Convert a Traditional IRA to a Roth after 60?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Backdoor Roth IRAs: Help Your Kids Keep More of Their Inheritance
• Roth IRA Contribution Limits for 2026
• Average IRA Balance by Age and Generation

For eight years now, you've been hearing about taxes going up in 2026 and that the solution was to do Roth conversions before that happened.

Now that the One Big Beautiful Bill Act (OBBBA) has made the prior tax rates permanent, does that mean the Roth conversion party is over?

I'm hearing from a lot of retirees who think so.

They're choosing to skip out on the Roth conversion calculations, and they just might be choosing to skip out on a lower lifetime tax bill.

Other retirees are making similar assumptions, but on the other side of the same coin. They think that, since they've been doing big Roth conversions for the past few years, they need to keep doing that.

What both sets of retirees get wrong is that it's assumptions, not tax law changes, that cause retirees to make the biggest mistakes.

One thing the OBBBA did not change is the need each year to evaluate your own personal income and tax situation so that you can make the best conversion decision for you, each year.

Which is why I created, even before the OBBBA, the Golden Rule of Roth Conversions (which I share in my book, Retire Today): Choose the right year and the right amount of Roth conversions.

Roth conversions are not a "yes" or "no." Roth conversions are "how much?" and "when?"

The goal of Roth conversions

Despite OBBBA making the prior tax rates permanent, the goals of Roth conversions haven't changed:

• Pay taxes when you expect your tax rates to be low
• Make some of your money available tax-free for when your rates are higher

To accomplish these two goals, you need to be on the lookout for your Roth conversion opportunity years, which are often (but not always):

• Between your retirement date and the year you start receiving Social Security
• Before you start taking your required minimum distributions (RMDs)
• When you file taxes as married filing jointly, before the surviving spouse must file as single

Before the OBBBA became law, it felt like the Roth conversion decision was easier — just convert as much as you could at the 12%, 22% and 24% tax brackets before they went up to the 15%, 25% and 28% tax rates.

But even then, you faced the same hidden obstacles as now. Here are three issues that could get in the way of your Roth conversion strategy:

1. The Medicare IRMAA surcharge

When you convert money from your traditional IRA to your Roth IRA, you know that the extra income will be taxable on your tax return. What often surprises you (and even your tax preparer): That income could cause your Medicare premiums to go up.

What many people do, when it comes to Roth conversions, is say, "I'm in this tax bracket. I'll convert to the top of this bracket, but I won't go into the next one."

This sounds quite reasonable, but near the top of the 22% tax bracket is the first IRMAA threshold ($218,000 for joint filers and $109,000 for singles).

The main confusion lies in that IRMAA is based on modified adjusted gross income (MAGI) before deductions, but the tax brackets are based on taxable income after deductions.

If focusing on the taxable income, you would think you're in the clear going to the top of the 22% bracket because it maxes out at $211,400 for joint filers and $105,700 for singles.

Of course, these numbers change each year, which is why you need to evaluate Roth conversions every year, based on up-to-date numbers, not old assumptions.

Before converting to a Roth, make sure to check both the current MAGI level for IRMAA and not just the tax bracket. That way, you can avoid the IRMAA surprise if you unknowingly went over those MAGI limits.

2. The assumption that once you start RMDs, it's too late

I hear it quite often: "I'm too old for Roth conversions." My response is always, "There is no age limit for conversions. No matter what your age, you should do conversions if you think the taxes you pay today are lower than the taxes you will pay later."

And if you are into the RMD ages, it's time to start considering not just the taxes you pay, but the tax rates your kids pay. When your kids inherit your traditional IRA, they will be forced to take it out over 10 years, which will very likely kick them into the next tax bracket, if not even higher.

If they inherit your Roth IRA, then they'll still have the same 10-year rule, but the money will be tax-free for them.

As I tell my clients, "Your kids will like that you left them money, but they'll love it if you leave them tax-free money."

Just remember that Roth conversions don't count as RMDs. You'll have to send out your RMDs as qualified charitable distributions (QCDs) or personal payouts, and then you can convert additional funds to a Roth IRA afterward.

Roth conversions aren't dead in 2026 — Roth assumptions are

It's not Roth conversions that died off with the new tax laws — it's assumptions about Roth conversions that died, although assumptions were always a problem even before the new tax law.

• Don't assume that your taxes in retirement will always be lower
• Don't assume that the new tax law makes Roth conversions obsolete
• Don't assume that you're too old for Roth conversions

Never assume. Always project.

Project out your tax situation, preferably with a financial adviser who uses forward-projecting tax software.

But if you're doing this on your own, consider your tax situation in the following before-and-after situations. Then try to convert and pay taxes intentionally in your own personal lower projected tax years.

• Before and after retirement
• Before and after starting Social Security
• Before and after RMDs start

Yes, the urgency of the December 31, 2025, low-tax conversion deadline is gone, but the need to project out your future tax situation so that you intentionally pay taxes when you expect your rates to be lower will never go away.

The OBBBA changes might mean fewer conversions in 2026 than you expected, or it might mean more.

What didn't change is that those who evaluate their Roth conversion each year, based on math and their personal situation, will give themselves better control of their tax situation so they won't be held hostage by future tax rates.

As I say in my book, "Control what you can control," and in retirement, your tax situation is one of the most impactful things you can control.

Related Content

• Is It Too Late to Do a Roth Conversion if You're Retired?
• 8 Factors to Consider When Considering a Roth Conversion
• The $183,000 RMD Shock: Why Roth Conversions in Your 70s Can Be Risky
• How to Max Out Your 401(k) in 2026 (New Limits are Higher)
• 5 RMD Mistakes That Could Cost You Big-Time: Even Seasoned Retirees Slip Up

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Roth conversions sound compelling: Tax-free growth, tax-free withdrawals and no required minimum distributions (RMDs). What's not to love?

Well, as with most things that appear to be financial no-brainers, the answer is: Plenty, if you're not careful.

A Roth conversion can be one of the most powerful tax-planning moves you ever make. It can also become an unnecessarily expensive detour that leaves you wondering why you volunteered to write such a large check to the IRS.

The difference between the two comes down to timing, tax strategy and understanding the long-term implications.

In this guide, we'll break down when a conversion makes sense, when it does not and how to evaluate whether it fits into your overall retirement plan.

What is a Roth conversion?

A Roth conversion simply means taking pre-tax money — generally from a traditional IRA or an employer plan — and converting it into a Roth IRA. You pay taxes on the amount converted today and, in exchange, you benefit from tax-free withdrawals later.

Think of it like prepaying your retirement taxes. You pay now, skip the tax bill later and enjoy future withdrawals without worrying about what tax brackets might look like down the road.

But that upfront tax bill is where the decision becomes real.

When a Roth conversion makes strategic sense

1. You're in a lower-than-normal tax year.

Life is full of surprises, and sometimes those surprises produce unusually low taxable-income years. Maybe you retired midyear, took time off work, started a business with low initial income or had a year with substantial deductions.

These years can be an ideal time to convert at a lower tax cost.

Why it matters: Roth conversions are taxed as ordinary income. If you can convert dollars at 12% or 22% instead of 32%, the long-term math becomes compelling. Paying taxes at a lower rate today to avoid higher rates tomorrow is the entire point.

As I often remind clients, a Roth conversion is most powerful when the IRS barely notices it happened.

2. You expect tax rates to rise.

Whether due to changing tax policy or your own future income expectations, converting when rates are low can set you up for tax-free distributions in a potentially higher-tax future.

While the One Big Beautiful Bill (OBBB) made current tax rates "permanent," that doesn't mean they won't rise under future administrations.

3. You have a long time horizon before needing the funds.

The longer Roth dollars have to grow, the more valuable the tax-free compounding becomes. Younger investors, early retirees and anyone with a multidecade horizon may benefit substantially.

Think of it like planting a tax-free tree that keeps growing and never requires mandatory pruning (unlike traditional IRA RMDs).

4. You want to reduce future RMDs.

Traditional IRAs and 401(k)s come with RMDs — forced withdrawals the IRS requires because they're tired of waiting for their cut.

For high-net-worth investors, large RMDs can create significant taxable income in retirement, affecting Medicare premiums, Social Security taxation and cash flow.

A well-timed conversion can shrink future RMDs, smoothing taxes across retirement and giving you greater control over your income.

When a Roth conversion does not make sense (at least not yet)

1. You're in a high tax bracket today.

Converting when you're in your peak earning years, or any year in the upper tax brackets, can be counterproductive.

If you're facing a 32%, 35% or 37% marginal rate, a conversion may mean writing the IRS a check that's far larger than necessary.

Unless you have strong reason to believe future rates will be even higher, waiting for a lower-income phase (retirement, sabbatical, business transition) is usually smarter.

2. You don't have cash on hand to pay the tax.

This is one of the most overlooked rules: You should almost never pay the conversion tax from the IRA itself.

Doing so:

• Reduces the amount making it into the Roth
• Can trigger penalties if you're under 59½
• Undermines the long-term compounding that makes Roth money so powerful

If paying the tax requires tapping investments you'd prefer not to sell, the timing is likely wrong.

3. You need the money soon.

If you're likely to need the converted funds within five years, the Roth five-year rule and shortened growth timeline can significantly reduce the benefits.

A Roth conversion is a long-term strategy.

4. A conversion would push you into tax landmines.

Sometimes, converting creates collateral tax consequences unrelated to the conversion itself, including:

• Higher Medicare premiums (IRMAA surcharges)
• Increased taxation of Social Security
• Phase-outs of deductions or credits
• Being pushed into a higher tax bracket

Conversions should be done carefully and intentionally — often in precise amounts that avoid crossing key income thresholds.

The impact of changing tax laws

Tax law changes are frequent, and retirement planning is likely to be affected in coming years. A thoughtful Roth conversion strategy must account for potential shifts.

Two major considerations:

1. Higher tax rates in the future.

Many investors are accelerating conversions in anticipation of higher future tax rates. That creates both a window of opportunity and a need for careful analysis.

2. Potential future limits on Roth advantages.

Roth accounts increasingly appear in policy discussions. While current proposals focus on extremely large IRAs — not typical investors — the attention is a reminder that laws can change.

A strong strategy includes reviewing conversions annually, not treating them as one-and-done decisions.

How to evaluate whether a conversion is right for you

A Roth conversion should be approached like any major financial decision: Based on data, not emotion.

To make a smart decision, consider:

• Your current vs expected future tax brackets
• Years until you'll need the money
• Whether conversions can be spread over multiple years
• How much room remains before you enter the next tax bracket
• Cash available to pay the tax bill
• Impact on Medicare, Social Security and overall retirement income planning

Proper modeling is essential. A multiyear tax projection can reveal the optimal amount to convert — which is often far different from what intuition suggests.

Final thoughts

Roth conversions can be fantastic. They can also be costly. The difference lies in timing, strategy and understanding your long-term tax landscape.

For many investors, partial conversions over several years provide the best blend of benefits and control. For others, the right answer may be to wait — or to skip conversions entirely.

If there's one universal truth, it's that Roth conversions should never be done impulsively. They belong in a thoughtful, tax-aware retirement plan that considers both today's situation and tomorrow's possibilities.

And remember: The IRS will always take your money. The question is how much and when. With the right strategy, you get to decide both.

A type of Roth IRA conversion, sometimes called a backdoor Roth strategy, is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you're required to take a minimum distribution in the year of conversion, it must be completed before converting. To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions. This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.

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• Eight Factors to Consider When Considering a Roth Conversion
• I'm a Financial Planner: If You're Not Doing Roth Conversions, You Need to Read This
• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for Retirees
• What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's Guide

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you're an American in your mid-70s, your retirement accounts are both a comfort and a challenge.

After decades of work, diligent saving and consistent investing, your balance might climb into the millions. Yet, since you turned 72 or 73 (depending on the year you were born), you've had to take required minimum distributions (RMDs) from your IRA.

Say you're now 75 with about $4.5 million in traditional IRA funds, and you receive a notice that your RMD will be just under $183,000. The withdrawal is mandatory. More unsettling is that every dollar is taxable as ordinary income.

That kind of bill sends many retirees searching for alternatives. Around golf courses, dinner tables and online forums, one suggestion rises above the rest: Just convert to a Roth.

The idea sounds simple. Move the money, pay taxes now, then enjoy tax-free growth and withdrawals forever.

At age 75, though, the financial math often tells a different story.

The appeal of the Roth

The Roth IRA is a favorite in financial planning because it offers:

• No RMDs
• Tax-free compounding for as long as the account exists
• Tax-free inheritance for your beneficiaries

Placed beside a looming six-figure tax obligation, those benefits feel irresistible. But the reality is that the promise of a Roth is highly dependent on timing, and timing is when older retirees run into problems.

Why? Because they have a shortened time horizon. The logic of converting to a Roth rests on pay now, save later, and that only works if you have enough years for tax-free growth to overcome the upfront tax.

At 75, your runway is shorter. Even with favorable markets, the break-even period to recoup the conversion tax can stretch beyond a decade. Here are several troubling factors:

RMDs do not disappear. Unless you convert the entire IRA, you still owe annual distributions on whatever remains. That $183,000 withdrawal cannot be skipped, and converting it in pieces does not erase it.

Heavy tax consequences. Converting $1 million might sound modest next to a $4.5 million account, but it can instantly create a tax bill of well over $350,000.

The added income can also trigger higher Medicare premiums, increase the portion of Social Security that is taxed and expose investment income to additional levies.

Estate planning contradictions. If charitable gifts are part of your legacy plan, paying upfront taxes to create Roth dollars is unnecessary, since charities can receive traditional IRA funds without tax.

For heirs, several coordinated strategies might outperform a costly conversion.

The cash drain. If you don't have large funds outside the IRA, you'll likely pay the conversion tax from the IRA itself. That reduces the account, cuts potential growth and weakens the very advantage that makes the Roth attractive.

Say an adviser suggests you convert $1 million to a Roth this year. You could be writing the IRS a check exceeding $350,000.

Instead, you might explore staged withdrawals across tax brackets, qualified charitable distributions that offset RMDs and coordinated updates to your estate documents. That approach can create significant tax relief without sacrificing long-term value.

Smarter alternatives

Professionals often point you toward strategies that balance flexibility and taxes. These include:

• RMD planning that spreads withdrawals to avoid big spikes
• Qualified charitable distributions that send funds directly to nonprofits, reducing taxable income while satisfying RMD rules
• Bracket management to time withdrawals and stay in lower tax bands
• Coordinated estate design to reduce your family's overall tax burden

The bigger picture

Roth conversions are promoted so aggressively that many retirees assume they're universally beneficial.

The truth is more nuanced, and conversions can make sense for younger workers or for people in their 50s and 60s. For wealthy retirees in their mid-70s, the cost often outweighs the benefit.

The real question is not whether you should convert, but whether a conversion truly reduces your lifetime tax burden. For many at age 75, the answer is no.

Ezra Byer contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Related Content

• Eight Factors to Consider When Considering a Roth Conversion
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• Is a Roth Conversion for You? Seven Factors to Consider
• 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Roth IRAs are a valuable tool for savers, but they remain underused. As of 2024, only 26% of U.S. households owned one.

However, among those households, 65% said they have a defined strategy for managing income and assets in retirement.

That suggests those who embrace Roth strategies often do so within a broader, disciplined plan.

Roth conversions can be a useful part of that plan, but they shouldn't be considered lightly. Before initiating a conversion, you should take a holistic view of your finances, work with your adviser and make sure you're well informed about the implications.

Why convert to a Roth IRA?

Roth IRAs offer tax-free growth after age 59½ and a holding period of five years, which can increase your net income in retirement and help you build a stronger legacy for your loved ones. However, if you have held a Roth IRA for five years and are age 59½ or older, you don't have to worry about a separate five-year rule for each conversion and can withdraw all growth penalty- and tax-free.

Shifting some of your pretax retirement assets into a Roth can lower future required minimum distributions (RMDs), thereby reducing taxable income. And under the SECURE Act's 10-year rule for most non-spouse beneficiaries, inheriting a Roth is more beneficial than inheriting a traditional IRA.

Because of the 10-year rule, it's advisable for beneficiaries to spread withdrawals over the decade from an inherited pretax retirement account to avoid a huge tax bill in the final year.

While an inherited Roth is also subject to this rule, RMDs are not required until the last year, and that final withdrawal is tax-free. This flexibility allows beneficiaries to invest more aggressively in an inherited Roth than in an inherited traditional IRA.

If markets are down in the 10th year, beneficiaries can also make an in-kind distribution to a taxable account, without triggering additional taxes.

Planning around taxes and timing

Of course, there are trade-offs. Taxes are owed on each Roth conversion, which increases adjusted gross income (AGI) for that year. The five-year rule also applies separately to each conversion, unlike a contributory Roth IRA.

To maximize the benefit, taxes should ideally be paid from after-tax funds. Those without sufficient after-tax liquidity may not be good candidates for a Roth conversion.

Managing brackets and hidden costs

A Roth conversion may push you into a higher tax bracket, particularly at jumps like 12% to 22%, or 24% to 32%.

To limit that impact, consider converting only enough to stay within your existing bracket. The 24% bracket is especially broad, allowing for larger conversions without higher rates.

Additionally, single filers face higher brackets than joint filers. (A conversion opportunity may therefore arise after a spouse's passing, while the surviving spouse can still file jointly.)

Other potential drawbacks include higher Medicare Parts B and D premiums owing to the income-related monthly adjustment amount (IRMAA), which is based on modified adjusted gross income (MAGI).

For retirees, MAGI is usually slightly higher than AGI because it adds back certain items, such as the non-taxable portion of Social Security benefits and municipal bond interest.

State and local tax rules can also present challenges. In New Jersey, for instance, retirees with incomes below certain levels qualify for pension exclusions and property tax benefits, both of which could be affected by higher reported income from a Roth conversion.

Similarly, New York offers a $20,000 exemption per taxpayer on private pretax retirement income, on top of a full exemption on public pension income, allowing couples to convert up to $40,000 without state tax.

Finally, high-income earners should be aware of the phase-down of the State and Local Tax (SALT) deduction, which further limits the ability to offset federal taxes. This change can reduce the overall benefit of large conversions for those already near SALT deduction caps.

Advanced conversion strategies

For those with a high income and ineligibility for direct Roth contributions, a "backdoor" Roth strategy may be an option, making non-deductible traditional IRA contributions, and then immediately converting to a Roth.

In addition to the 59½ and five-year rules, the pro-rata rule must also be considered. Taxes on the conversion depend not only on the converted amount but on the total pretax IRA balance. This includes traditional, SEP and SIMPLE IRAs, but not 401(k)s.

Those with large existing traditional IRA balances may not be ideal candidates for a backdoor Roth IRA, whereas those with a large 401(k) and no other pretax IRA assets may benefit more.

Even among plans that allow Roth conversions, adoption remains limited: Only 32% of plan administrators said some of their plans permit Roth conversions, and 26% said most did.

That gap underscores how underused these strategies remain, even as tax diversification becomes more valuable. There are two distinct backdoor Roth strategies:

• The IRA backdoor Roth, which involves contributing to a non-deductible traditional IRA and then converting to a Roth.
• The 401(k) or plan-based backdoor Roth, available only if an employer plan permits in-plan Roth conversions or allows after-tax contributions that can later be rolled over. Note this can only be done once the elective deferral limit is reached and permitted up to the annual additions limit, which includes all elective deferrals, employer contributions, and after-tax contributions.

While after-tax contributions can be rolled over to a Roth IRA, any growth on them is still considered pretax, unless immediately converted.

If the conversion feature becomes available only after significant after-tax growth has accumulated, participants should consider rolling over contributions to a Roth IRA and the growth on them to a traditional IRA before converting, to minimize taxes.

This approach helps avoid taxes on the initial conversion and ensures a clean starting point. Opening a Roth IRA early also starts the five-year clock on tax-free growth sooner, avoiding delays when future rollovers occur.

If you are phased out of a contributory Roth conversion and worried about the pro-rata rule, consider a small one-time backdoor Roth IRA contribution.

The bottom line

A Roth conversion isn't right for everyone, but when done thoughtfully, it can be a powerful way to enhance retirement income, reduce future taxes and gain more control over your financial future.

The right strategy depends on your income, time horizon and ability to pay the upfront tax bill without dipping into retirement savings.

When approached carefully, with a clear understanding of how it fits into your broader goals, a Roth conversion can provide lasting benefits: flexibility in retirement, protection against rising tax rates and a more tax-efficient legacy for your heirs.

Make sure to talk to a qualified financial adviser who can help you evaluate your options and make the right decision for your personal situation.

Related Content

• Roth IRAs: What They Are and How They Work
• The Roth IRA Advantage: 10 Things Every Saver Needs to Understand
• Quiz: Understanding Roth Conversions
• 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)
• Inherited an IRA? Key Distribution Rules to Know for 2025

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The end of the year is upon us, and Christmas is fast approaching.

Even as we are busy with all the family events and flurries of activities (and snow!), it is prudent to also keep an eye on the financial side. There are some great opportunities to take advantage of before the end of the year.

Here are three.

1. Retirement contributions

You can make contributions to your traditional IRA and Roth IRA for 2025 up until April 15, 2026 (or until March 15 for a SEP with some flow-through entities).

However, you cannot backdate 401(k) contributions — you have to make those before December 31.

Either way, before the end of the year, you should have a good idea about how much you want to contribute and whether it makes sense to max out those limits.

Your CPA might tell you it would save you money to contribute more to an IRA for 2025, and that would be strictly true because you are not paying the tax on that money in 2025.

However, this can come back to bite you in the long run because the taxes are deferred, rather than forgiven. This means that someday you will need to pay the taxes.

It's a good idea to make sure that you have a long-term plan for when to pay the tax and how to minimize the taxes over your lifetime, rather than just looking at it year by year.

2. Roth conversions

Roth conversions for 2025 cannot be backdated and must be completed before December 31, 2025.

If you are going to convert to a Roth this year, you should start the process as soon as possible to ensure adequate time for processing — depending on the custodian or investment company, it could take a week or more to process a conversion.

You do not need to pay the tax on the conversion until January 15, 2025 (the last quarterly tax deadline). It would make the most sense to use outside funds to pay the taxes on the conversion so that your new Roth balance can start as high as possible.

Every situation is different, but for most people, it makes sense to at least "fill up" your current tax bracket using Roth conversions (or if you are in the 22% bracket, consider filling up the 24% bracket since it is only slightly higher).

Due to the new tax law known as the One Big Beautiful Bill (OBBB), the tax brackets are not changing for the worse, and we have at least the next few years to take advantage of:

• Some of the lowest tax rates in decades
• Increased standard deductions
• SALT (state and local tax) deduction limits

It is often better to pay a little more tax now (on the Roth conversion) than to pay a lot more tax later by deferring.

3. Capturing gains/rebalancing

Even with the shakiness of the market back in April and also earlier this month, most equities are still up quite a bit this year (and especially over the past three years).

Now may be a good time to think about capturing some of those gains in your nonqualified/brokerage account.

Depending on how much other income you have, it is possible to pay a 0% tax rate on capital gains.

For example, a married couple over age 65 who is living on combined Social Security and IRA withdrawals of $80,000 would still have more than $60,000 of room in the 0% capital gains bracket due to the increased standard deductions and the bonus deductions for being over 65.

The couple could sell $60,000 of highly appreciated stock and pay no capital gains tax in 2025.

The question then becomes, if you don't have an immediate plan for the gains you just captured, where should they be invested in the meantime for maximum tax efficiency? One idea is to use that money to pay taxes for Roth conversions.

If you are concerned about the market still being at or near all-time highs, you could take advantage of the (still strong) interest rates we have today and lock in some guaranteed options.

Using a fixed annuity would defer the taxes (similar to an IRA but without the long-term headache of required minimum distributions, or RMDs).

Conclusion

There are several strategies you can and should take advantage of before December 31. Most importantly, if Roth conversions make sense given your situation, you'll want to take advantage of every year you can while the taxes are this low.

However, with the market up significantly for the year, it may also be a good time to capture those gains in nonqualified/brokerage accounts, protect the accounts from loss and at the same time pay the capital gains tax at an efficient time.

Whatever area you want to focus on, you should have a long-term vision rather than just making a snap decision that only saves you tax temporarily while still raising your lifetime tax burden.

Related Content

• Time Is Running Out to Make the Best Moves to Save on Your 2025 Taxes
• Year-End Retirement Tax Planning Actions if You Have $1 Million or More
• Seven Moves for High-Net-Worth People to Make Before End of 2025, From a Financial Planner
• Capital Gains Tax Rates 2025 and 2026: What You Need to Know
• New Tax Rules: Income the IRS Won't Touch in 2025

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Taxes are a worry for most retirees, even as they put their working years behind them and ease into what should be a more relaxing time.

Taxpayers were expecting to face even more worries at the end of this year, when the Tax Cuts and Jobs Act of 2017 was set to expire.

Fortunately, many of the act's provisions became permanent when Congress passed and the president signed the One Big Beautiful Bill (OBBB).

But the new law has done more than that. It also includes tax changes that are especially amenable to many retirees and near retirees.

However, they aren't all going to last, so it may be wise to take advantage sooner rather than later.

The 65-and-older advantage

One of those changes is that many taxpayers age 65 and older can qualify for an extra $6,000 standard deduction. This not only lowers your tax bill but could also reduce your taxable income enough to avoid taxes on your Social Security benefits.

Yes, up to 85% of your Social Security benefits can be taxed, depending on your income.

If couples filing jointly are both at least 65, they can each qualify for the extra deduction, making it a total of $12,000.

But there are income restrictions on who qualifies. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 (or $150,000 for joint filers).

The deduction also won't be around forever; it lasts only through 2028.

Higher deductions for state and local taxes

Some federal income taxpayers may also be able to take advantage of a higher deduction for what they pay in state and local taxes, the so-called SALT deduction, at least until 2029, when this law expires.

The cap on how much you can deduct has been raised from $10,000 to $40,000, but once again, there are income limits.

In this case, the new cap applies to incomes under $500,000 for those filing jointly, or under $250,000 for individuals or married couples filing separately.

For those whose taxable income is over $500,000, the cap is gradually reduced until it reaches the previous level of $10,000.

This new cap could change whether you decide to itemize your deductions rather than take the standard deduction.

Good opportunity for Roth conversions

In addition to taking advantage of the tax changes, there are other steps to consider during this limited period when your tax liability could be lower.

For example, this would be a great time to consider a Roth conversion if you have been saving money for retirement in a traditional IRA, 401(k) or other tax-deferred accounts.

Those accounts are great for saving money, and you do have immediate tax advantages with them since your yearly contributions aren't taxed.

The downside is that when you retire and start spending the money you saved, your withdrawals are taxed.

Plus, once you reach age 73 (age 75 for those born in 1960 or later), required minimum distributions (RMDs) kick in, forcing you to withdraw a certain percentage each year whether you want to or not.

Roth accounts, on the other hand, grow tax-free, aren't taxed when you make withdrawals and don't have RMDs. You do, however, pay taxes when you make a conversion from a traditional account to a Roth.

But that's one reason these next few years may be a good time to move some of your money to a Roth.

You have some wiggle room in your tax bill, thanks to tax provisions such as the extra deduction for those 65 and older, and you can also take advantage of the higher SALT cap.

Pay less, keep more for yourself

One criticism of the OBBB is that lower taxes could increase the federal deficit and add to the country's growing debt. At some point in the future, that debt will need to be addressed — possibly through higher taxes.

In the meantime, consult with a financial professional to make sure you are getting the most out of the tax advantages currently available to you.

An adviser can review your individual situation, analyze your income sources and any available deductions or financial moves, and help you craft a plan that works best for you.

Yes, taxes are a concern even in retirement. But good planning and an awareness of changes that apply to you can allow you to give Uncle Sam less money and keep more for yourself.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

OneSeven is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. All titles listed for individuals associated with RISE Capital represent the individual’s role with RISE Capital, and not their role with OneSeven. Services are provided under the name RISE Capital, a DBA of OneSeven. Insurance Products offered through AA Insurance Advisors, LLC.

Related Content

• I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
• Is the One Big Beautiful Bill Really All That Great for Your Retirement?
• ​​What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's Guide
• Your Golden Years Just Got a Tax Break, But There's a Catch

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. In the Ask the Editor August 8 column, she answered five questions on Roth IRA conversions. This week, she’s looking at six more questions on the topic. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Annual limits on Roth IRA contributions

Question: I am thinking of doing a Roth IRA conversion for 2025, but my income is above the limit for making annual Roth IRA contributions. Can I still do a conversion?

Joy Taylor: Yes. Although there are income limitations for making regular, annual contributions to Roth IRAs, those income limitations do not apply to Roth conversions. Even if you cannot make an annual $7,000 ($8,000 for people 50 and older) Roth IRA contribution for 2025 because your income is too high, you can still transfer money from your traditional IRA to your Roth IRA in a Roth conversion. There is no limit on the amount of funds you can convert.

2. Taking the annual RMD and married couples

Question: I am 74 years old. I understand that if I want to transfer some funds from my traditional IRA to my Roth IRA in a Roth conversion, I must first take my total aggregate annual required minimum distribution (RMD) from my traditional IRA before I do the Roth conversion. My husband and I file joint tax returns, and he also has a traditional IRA. Does he have to take his full annual RMD before I can do a Roth conversion for the year?

Joy Taylor: Traditional IRA owners who are 73 and older must take annual RMDs. People of RMD age who are considering a Roth IRA conversion must first take their full annual RMD for the year before doing the conversion.

Since IRAs are individual accounts, only you must take your full required RMD for the year before converting any part of your traditional IRA into a Roth IRA. It’s OK if your husband waits until later in the year to take his annual RMD from his traditional IRA. That won’t have any impact on your Roth conversion for the year.

3. Rollover IRAs and Roth Conversions

Question: I am 63 and retired, and I want to do Roth conversions over the coming years. I have an existing Roth IRA. I also have a rollover IRA to which I had previously rolled over all the funds in my 401(k) account shortly after I retired. Can I do Roth conversions from my rollover IRA to my Roth IRA, or do I have to convert my rollover IRA to a traditional IRA first and then do the conversions?

Joy Taylor: You can do a Roth conversion from a rollover IRA to a Roth IRA. The income tax consequences should be the same as doing a Roth conversion from a traditional IRA.

4. SIMPLE IRA and SEP IRA

Question: Can a Roth IRA conversion be done from a SIMPLE IRA or SEP IRA?

Joy Taylor: Yes, you can transfer funds from a SIMPLE IRA or a SEP IRA to a Roth IRA, and the tax consequences should be the same as if you did the Roth IRA conversion from a traditional IRA.

5. Converting entire traditional IRA vs. a portion

Question: Can I transfer only a portion of my traditional IRA to a Roth IRA in a Roth conversion, or must I transfer all my traditional IRA funds in one swoop?

Joy Taylor: In a Roth conversion, you can convert all or a portion of your traditional IRA to the Roth. And in fact, many personal finance professionals advise to space out the Roth conversions by converting a portion of their traditional IRA each year. That way, you minimize the income tax impact on each conversion, thereby allowing you to manage your adjusted gross income (AGI) or modified AGI in the conversion years. This helps if you are of Medicare age and are trying to avoid Parts B and D Medicare premium surcharges on top of your regular monthly premiums. It also helps if you are trying to qualify for tax deductions or credits that have AGI phaseouts.

There are many factors to consider before doing a Roth conversion. I would suggest you talk with your IRA custodian or other personal finance professional before making any moves.

6. Five-year rules for Roth IRAs

Question: I know there is a five-year rule for withdrawing money tax-free from a Roth IRA. Can you explain the rule? When does the five-year rule start?

Answer: There are actually two five-year rules that apply to Roth IRAs. The first applies to Roth IRA contributions, including rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the owner first contributed to a Roth IRA.

For this first five-year rule, the five-year clock starts the first time that money is deposited into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t start for later Roth contributions, conversions or for newly opened Roth IRA accounts.

The second five-year rule applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. That’s because the 10% early withdrawal penalty doesn’t hit Roth IRA conversions.

This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pre-tax income from traditional IRAs to Roths. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period.

Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above. For instance, if you do multiple Roth IRA conversions, there will be multiple five-year time periods, even if each conversion is done into the same Roth IRA account that you have owned for years.

For more information on the two Roth IRA five-year rules, see what to know about the five-year rules for Roth IRAs.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: QCDs and Tax Planning
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on the $6,000 Senior Deduction

Individual Retirement Accounts (IRAs) are the foundation of tax-advantaged retirement savings, offering every worker the chance to build wealth outside of a workplace retirement plan. But knowing whether to choose a Traditional IRA (tax break now) or a Roth IRA (tax-free in retirement) requires understanding the crucial differences in contribution limits, income phase-outs, and withdrawal rules.

This 10-question True/False quiz covers the essential facts you need to maximize your annual contributions and avoid costly mistakes. Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on IRAs, from the Kiplinger team:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• The Average Retirement Savings by Age
• Roth IRAs: What They Are and How They Work
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026
• SEP IRA Contribution Limits for 2026

The coming 2026 changes to IRAs and 401(k)s offer new opportunities to save more for retirement, but you need to understand the new rules. This means keeping track of changes like higher contribution limits and updated requirements for withdrawing money from your accounts.

So, what's on deck for 2026? The major changes coming to retirement plans and accounts in 2026 are primarily driven by the SECURE 2.0 Act and the annual inflation adjustments. The most significant change to be aware of involves catch-up contributions for high earners.

1. Catch-up 401(k) contributions for higher earners over 50 must be made to a Roth

This rule requires that certain high-income earners must make their age 50 and older catch-up contributions to their 401(k), 403(b) or governmental 457(b) plans on a Roth or after-tax basis.

The primary change is a shift from an upfront tax deduction to tax-free withdrawals in retirement. This eliminates a significant pre-tax deduction for high-earners nearing retirement, effectively requiring them to pay income tax on the catch-up portion of their savings now rather than in retirement.

Who is affected? The rule applies to any participant who meets both of the following criteria:

• Age: The participant is age 50 or older or will turn 50 during the year
• Wages: The participant's FICA wages (Social Security wages, typically Box 3 of Form W-2) from the employer sponsoring the plan exceeded $150,000 in the prior calendar year.

If you are a high earner, with over $150,000 in FICA wages in 2025, and are 50 or older, you will no longer be able to deduct your catch-up contributions from your current year's taxable income. That income threshold will be adjusted for inflation in the future.

For affected high-earners, any catch-up contributions — $8,000 in 2026 (up $500 from $7,500 in 2025) —made to their employer-sponsored plan must be designated as Roth or after-tax contributions. High-earners lose the option to make those catch-up contributions on a pre-tax basis.

If your employer's plan does not offer a Roth contribution feature, then all participants who are subject to the high-earner rule will be prohibited from making any catch-up contributions to that plan.

Action to consider now: If you are age 50 or older and your income is close to or over the $150,000 threshold, you should consult with your plan administrator, financial or tax adviser to understand how the mandatory Roth catch-up rule will affect your retirement savings strategy for 2026.

2. 401(k), 403(b), and 457(b) plan contributions go up in 2026

The annual announcement of increased contribution limits for employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and 457 plans, is a critical opportunity for employees to accelerate their savings and secure a stronger financial future.

These higher ceilings allow workers — especially those utilizing catch-up contributions as they approach retirement — to defer more income into tax-advantaged accounts, boosting their potential for long-term compound growth and maximizing their immediate tax benefits.

As the Social Security trust fund is on shaky ground, some experts recommend saving more to cover any potential shortfall. How much more? The experts at Pension Bee suggest people save an additional $138,000 in additional savings to generate the same income if Social Security is reduced, based on the 4% withdrawal rule.

3. Traditional and Roth IRA limits for 2026

While there is no income limit when contributing to a traditional IRA, the ability to deduct that contribution is phased out based on your income and whether you (or your spouse) are covered by a workplace retirement plan.

If you are not covered by a workplace plan but your spouse is, you can still take the deduction, but your joint income will affect it.

If neither you nor your spouse is covered by a retirement plan at work, you are not subject to any income limitations and can take a full deduction for your traditional IRA contributions up to the annual limit, regardless of your Modified Adjusted Gross Income (MAGI).

Here are the contribution limits and MAGI phase-out ranges for making deductible contributions to a traditional IRA for the 2026 tax year:

If only one spouse is covered by a workplace retirement plan, you will have a higher phase-out range. For married couples filing jointly:

• Full deduction if MAGI is: $242,000 or less (up from $236,000 in 2025)
• Partial deduction if MAGI is between: $242,001 and $252,000 (up from a range of $236,001 and $246,000 in 2025)
• No deduction if MAGI is: $252,000 or more (up from $246,001 or more in 2025)

4. Expanded savings for small businesses and the self-employed

For small business owners and the self-employed, the annual increase in retirement plan contribution limits is a powerful development that offers significant opportunities to boost tax-advantaged savings.

The higher contribution ceilings for plans like the SEP IRA, Solo 401(k), and SIMPLE IRA allow business owners to defer greater amounts of income for both themselves and their employees.

This move is key for maximizing retirement readiness, benefiting from larger immediate tax deductions and making their plans more competitive for attracting and retaining talent.

For solo 401(k) accounts. You're also allowed to contribute up to 25% of compensation (after Social Security and Medicare taxes) as the employer profit-sharing contribution. The employer (profit-sharing) contribution limit remains up to 25% of compensation, with an overall compensation cap of $360,000 for 2026.

5. Paper statement requirement

You may find something new in your mailbox in 2026. Defined contribution plans, such as 401(k)s), must provide their participants with at least one paper statement per calendar year, unless the you specifically elect to receive statements electronically. Defined benefit plans must provide one every three years.

6. Health savings accounts (HSAs)

Paying for health care can be challenging before and after retirement. One way to save ahead for medical expenses in retirement is by contributing to a health savings account (HSA) before you enroll in Medicare. These accounts offer a triple tax benefit because contributions are made pre-tax (or are tax-deductible if you contribute after-tax), your contributions grow tax-free, and withdrawals are tax-free when used for qualified medical expenses.

After age 65, you can withdraw funds for any non-medical reason without a penalty; the withdrawals will simply be taxed as ordinary income, similar to a traditional IRA.

The limits below determine if your health plan is eligible to be paired with an HSA.

The catch-up contribution is available to an individual who is age 55 or older by the end of the tax year and is not enrolled in Medicare. If both spouses are 55 or older and not enrolled in Medicare, they can each contribute the $1,000 catch-up amount, but they must do so in separate HSA accounts.

Here are the official contribution limits, minimum deductible and maximum out-of-pocket limits for an HSA-qualified high deductible health plan (HDHP) in 2026:

Tip: You can use HSA distributions to reimburse yourself for your Medicare Part B and D premiums, co-pays, deductibles and coinsurance. However, Medigap premiums aren't considered qualified medical expenses and would be subject to income tax.

2025 year-end deadlines

Take a moment to review your retirement accounts before 2025 ends. See where you still have opportunities to invest or correct some potentially costly errors.

• 401(k) Contribution limits and deadlines. For most 401(k) plans, the deadline to contribute is December 31, 2025. This deadline also applies to participants who are 50 or older at the end of the calendar year 2025.
• IRA Conversion deadline. The deadline for converting a traditional IRA to a Roth IRA is December 31, 2025.
• Excess contributions. If you exceed the 2025 IRA contribution limit, you can withdraw excess contributions from your account by the due date of your tax return (including extensions). If you don't, you must pay a 6% tax each year on the excess amounts left in your account.
• Required minimum distributions (RMDs). Remember that you face an excise tax on any RMD that you fail to take on time. You must calculate the RMD separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs.

Related Content

• Six Changes Coming to Social Security in 2026
• 9 Medicare Changes Coming in 2026
• Nine Things You Need For a Complete Retirement Plan
• New IRS Start Date for Mandatory Roth Catch-Up Contributions

If you have an individual retirement account (IRA), you might have considered converting it into a Roth account at some point. But you might not know the best time to do a conversion, or even if doing so would benefit you.

The immediate tax trade-off from an IRA to a Roth is relatively clear: With a traditional retirement account, you pay taxes when you take a distribution; with a Roth, you pay taxes now on the funds you contribute.

Converting to a Roth means you must pay the income tax on contributions in the year of conversion. Still, the potential tax benefits could be worth the upfront cost, especially if one of the following scenarios applies to you.

Here are six tax reasons you may convert your IRA to a Roth — and when you probably shouldn’t.

Roth IRA tax benefits

1. Get tax-free growth and withdrawals in retirement with a Roth

One major reason to convert your traditional IRA or 401(k) into a Roth is for tax-free growth. Because taxes are paid on your conversion upfront, all future qualified distributions are withdrawn tax-free, leading to significant trickle-down benefits.

• For example, once you reach age 65, you might have to pay Medicare’s income-related monthly adjustment amount (IRMAA). This amount is based on your modified adjusted gross income (MAGI). Because tax-free Roth earnings are excluded from your MAGI, you might avoid higher Medicare premiums on your retirement income.
• Other taxes, such as those on capital gains and the net investment income tax (NIIT), depend on your MAGI in the year of withdrawal. By withdrawing future earnings tax-free with a Roth, you might indirectly minimize or even avoid these taxes altogether.

Timing your Roth conversion is also important for maximizing tax-free growth. For example, you can convert to a Roth when the market is down and your IRA balance is temporarily low. This allows you to pay the tax on a smaller valuation, so when the market inevitably rebounds, your tax-free earnings might more easily recoup your upfront conversion tax bill (more later on conversion timings).

2. Set up flexible retirement income with Roths

Roth conversions from a traditional IRA account might also be ideal for those who want the final say in how they spend their retirement savings account income.

With a traditional IRA, Uncle Sam dictates when and how much you need to withdraw from your retirement account every year.

With a Roth, you’re not forced to take out a certain distribution during specific years, meaning you can freely avoid late-withdrawal penalties and flex your retirement account savings.

However, before your Roth IRA earnings become entirely tax-free and penalty-free, you must meet two requirements for a qualified withdrawal:

1. The 5-year rule. Your Roth IRA must have been open for at least five full years.
2. The age or life event rule. You must be at least 59½ years old, or the withdrawal must be due to disability, a first-time home purchase (up to $10,000), or death.

If you withdraw the earnings before you meet the rules above, that money could be subject to both income tax and a 10% early withdrawal penalty. But by flexing your retirement IRA distributions, you can make strategic withdrawals and help manage your taxable income, even lowering your federal tax bracket altogether.

Roth conversion timing

3. Take advantage of a low tax bracket with Roth accounts

The final months of the year are often the most popular time to execute a Roth conversion. Why? By late fall, most taxpayers have a firm grasp of their projected taxable income and, consequently, their federal tax bracket.

If you expect this bracket to be lower than the one you'll be in future years, converting your IRA to a Roth now could be advantageous. This strategic move allows you to lock in a lower tax rate and significantly reduce your immediate tax bill on the conversion.

If you're fortunate enough to have a lower tax bracket in 2025 than you anticipate in the future, here are the specific times and scenarios when converting your traditional IRA into a Roth might make sense:

• You’re not close to retirement. If retirement age is still 10 or more years away (and you expect to earn more in retirement), now might be a good time to convert your IRA to a Roth, so you can maximize your tax-free growth.
• You expect to live longer. Do you know any relatives who have reached their 90s and are still in good health? Required minimum distributions (RMDs) on traditional IRAs are calculated based on life expectancy tables, which might not fit your family’s expected lifespan. A Roth account offers lifetime tax-free savings, potentially providing a cushion of funds for many years.
• You’re retired and recently transitioned from married filing jointly to a single filer. Single filers generally have a lower income threshold for paying Medicare surcharges, making them susceptible to higher tax bills in the future. By converting to a Roth account, you can potentially avoid those higher tax brackets by preventing the Medicare surcharges on IRA distributions.

The most “ideal” time to convert to a Roth depends on a case-by-case basis, so consult a qualified tax professional before the conversion to see if it’s right for you.

4. Avoid RMD taxes with a Roth IRA

Retirees are likely already familiar with the concept of a RMDs. But if you’re new to the retirement game, here’s the scoop:

• RMDs are money that must be withdrawn from your 401(k), 403(b) or traditional IRA every year after you reach a certain age (right now, that’s likely age 73).*
• Failure to make the withdrawal typically results in a 25% penalty on the amount not distributed.

RMDs can increase your taxable retirement income in a variety of ways. For instance, they can raise the taxable portion of your Social Security benefits by increasing your provisional income or pushing your taxable income into a higher federal tax bracket.

A key advantage of converting to a Roth IRA is the lack of RMDs during the original owner’s lifetime.

Because Roth accounts typically don’t have RMDs, you might be able to avoid taking distributions from your Roth during years of high taxable income, while withdrawing more funds tax-free during low-tax years. This is particularly ideal for high-earners who anticipate higher tax rates in the future.

*Note: If you are 73 or older at the time of the conversion, you must first take your RMD from your traditional IRA in the year of the switch.

Retirement and Estate Planning for Roths

5. Start a Roth IRA after you retire to avoid future high tax rates

If you’re newly retired, now might be the optimal time to convert your 401(k), 403(b) or other traditional IRA into a Roth. Your tax bracket might be lower than it's been while you were working, and you’re not yet taking Social Security or are required to take an RMD (which can push you into a higher tax bracket).

This retirement “sweet spot” is when federal tax rates are at their lowest, which might help create a couple of ideal scenarios for a Roth conversion:

• For instance, if your pension or annuity hasn’t kicked in yet, now might be a great time to convert your traditional IRA or 401(k) while taxable income is low.
• If you plan to receive a large lump sum from an employee stock ownership plan (ESOP) or other retirement investment, converting to a Roth now could save you future taxes when your taxable income is higher.

As reported by Kiplinger, some financial planners also speculate that the changes made in the Trump/GOP 2025 tax and spending bill have placed taxpayers in “one of the lowest-income-tax environments in history.” If that applies to you, consider converting now to a Roth before future tax rates potentially increase.

For more information, check out Kiplinger’s report on Timing Roth Conversions.

6. Give tax-free assets as inheritance to your kids with a Roth

Withdrawals from a traditional IRA or 401(k) are always taxable, no matter who’s taking the funds. Unfortunately, that means your kids could pay the price if you leave them your IRA.

That’s where another tax advantage of converting your IRA into a Roth comes in handy: Your heirs could inherit those funds income tax-free.

Not only that, but inherited Roth earnings continue to grow tax-free, meaning your heirs have more flexibility on when to withdraw.

However, your nonspouse heirs generally have to withdraw all funds from an inherited Roth within 10 years of your death (this also applies to traditional IRAs and is commonly referred to as the 10-year rule). Once more, inherited Roth IRAs have RMDs for some heirs (such as children), though spouses who inherit a Roth might not be subject to RMD rules.

For more information on the 10-year rule and inherited Roth accounts, check out Kiplinger’s report, Inherited an IRA? Key Distribution Rules to Know for 2025.

When you shouldn’t convert to a Roth

Although we covered six tax reasons for converting your IRA to a Roth, there are times when a Roth conversion can be financially detrimental. Here are a few scenarios when you wouldn’t convert a traditional IRA to a Roth.

• You expect your 2026 income tax rate (or later) to be lower (or the same). If you think your future federal tax rate will be lower than your current rate, you might not want to convert a traditional IRA to a Roth, as doing so would mean paying higher tax rates later.
• You have to use IRA funds just to pay the conversion tax bill. Since the Roth conversion tax is due upfront, you must pay it immediately. If you're forced to use the IRA funds themselves to cover the tax bill, that withdrawal becomes taxable and could trigger an early withdrawal penalty (if you're under 59½). This might significantly diminish your retirement savings and undercut the primary benefit of the Roth: Tax-free growth.
• You need to use the converted funds within five years. If you’re under 59½, you can’t use your funds for five years after a traditional IRA to Roth conversion. Otherwise, you could be subject to a 10% early withdrawal penalty. (Yet if you’re older than 59½, you might withdraw the funds penalty-free before the five years are completed, though any earnings on those funds will be subject to income tax.)
• You’re retiring soon. If you’re retiring within the next five years, your Roth account will not have a lot of time to grow tax-free, so you might not want to convert your IRA into a Roth. Otherwise, your upfront conversion tax bill might never be recouped.

Deciding if and when to convert your traditional IRA to a Roth account should be part of a comprehensive tax strategy that considers your various income streams and retirement time horizon.

For example, converting to a Roth might seem like a good idea for generating tax-free growth, but the increase to your taxable income in the year of conversion could have ripple effects. Higher taxable income might preclude you from claiming tax breaks that you’re eligible for, such as the tip tax deduction or $6,000 bonus deduction for older adults.

You don’t have to make an IRA to Roth conversion all at once. You can decide to minimize the impact of your conversion taxes by spreading out a Roth conversion gradually, if at all.

Ultimately, Roth conversions are irreversible: Exercise caution. Once you’ve made one, you’re stuck with the upfront tax bill and the Roth account for a lifetime.

Read More

• Roth IRA Contribution Limits for 2025
• Retirement Changes to Watch in 2026: Tax Edition
• The Rubber Duck Rule of Retirement Tax Planning
• 3 Major Changes to the Charitable Deduction in 2026

A Roth IRA conversion is one of the most powerful moves a retirement saver can make, offering the promise of tax-free growth and tax-free withdrawals forever. A Roth conversion allows you to move pre-tax money from a traditional IRA or 401(k) into a Roth IRA, fundamentally changing how your retirement savings will be taxed. Unlike contributions, there are no income limits on conversions, making them a key tool for high-net-worth individuals and those planning for Required Minimum Distributions (RMDs).

From the tax implications on the conversion itself to the separate withdrawal rules that apply, understanding this financial maneuver is essential for optimizing your tax bill in retirement. Take this 10-question True/False quiz to determine if you truly understand the powerful mechanics of this tax-smart retirement strategy.

And don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on Roth IRAs and Conversions:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• Roth IRAs: What They Are and How They Work
• Want to Avoid the IRMAA? Consider a Roth Conversion
• Should You Convert a Traditional IRA to a Roth after 60?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Backdoor Roth IRAs: Help Your Kids Keep More of Their Inheritance
• Roth IRA Contribution Limits for 2026
• Average IRA Balance by Age and Generation

Question: I'm 54 with a $320,000 IRA and am transitioning into self-employment with a projected annual income of $120,000. How much of that can and should I be saving for retirement? What are the best tools for self-employed savers?

Answer: Making the leap from a salaried position to self-employment can be challenging. However, there are also several benefits.

For one thing, being self-employed allows you to work from your location of choice. If you’re 54, you may no longer have the energy to deal with a lengthy commute. As more companies call employees back to the office full-time, transitioning to self-employment could mean getting to work from home and avoiding the hassle of daily commuting.

Or, it may be that you’re moving into self-employment to follow your passion. If you no longer have kids living under your roof and have a solid financial cushion, your mid-50s could be a good time to pursue a line of work you find more rewarding.

If you’re 54 with $320,000 in your IRA, you’re ahead of the game on the retirement savings front compared to the typical American your age. As of the second quarter of 2025, the average IRA balance for savers in their 50s was $129,222.

Still, that doesn’t mean you should necessarily be done saving for retirement. If you were to leave your $320,000 invested at a yearly 8% return until age 67, which is your full retirement age for Social Security, you could end up with around $870,000. That’s a nice-sized nest egg, but you may want more.

Becoming self-employed might make saving for retirement more challenging, at least initially. But it’s important to make it a priority.

Aim to save 15% of your income — once things stabilize

When you’re transitioning into self-employment, you might go through a period of income volatility. It’s okay to pause retirement plan contributions at the onset as long as you commit to starting back up again once your income stabilizes, says Brennan Decima, Founder and Managing Director at Decima Wealth Consulting.

“First, focus on creating six months of cash flow security to give some cushion for your variable income,” he says. “Once that is in place, I suggest to my clients to try and save at least 15% of their income towards retirement.”

Brian Heckert, Founder and Wealth Manager at FSM Wealth, Inc., agrees.

“Having been self-employed for the last 40 years, I have gone from boom to bust with the economy and market cycles,” he says. “Assuming everything is working well, and the $120,000 [annual income] is net of expenses, I would like to see them continue at least as much as they have been saving as an employee — hopefully at least 10-15% of the net income.”

Use the right retirement savings account

Being self-employed gives you more options when it comes to retirement savings plans.

“There are three qualified plan options available for a self-employed person – a Solo 401(k), a SEP IRA, and a SIMPLE IRA,” says Heckert. “All three plans are flexible from year to year, and the contributions can be made up until the tax deadlines.”

If you’re aiming to save 15% of a $120,000 income, or $18,000, all three of these accounts allow for a contribution that large at age 54, Heckert explains.

Decima happens to be a fan of the Solo 401(k) because it gives people “the flexibility of making tax-deductible contributions in years their income is higher, or doing Roth contributions in years where income is low.”

If you’re self-employed and pay yourself a salary, a Solo 401(k) may allow for higher contributions than other retirement plans. However, it’s best to consult a tax professional for advice on your specific situation, as there may be variables to consider outside of your self-employment income.

Make the process automatic

Once you get into a steady income flow, you may want to automate the process of funding a retirement account rather than write your savings a big check at the end of the year.

“It’s really easy to spend money when it comes directly to our bank accounts,” Decima says. “Automating the savings where it goes directly to the 401(k) conditions you to pay yourself first, making it easier to stay on track and reach your future goals."

One thing you may want to consider is automating a baseline contribution each month, and then assessing your net income at the end of each year. If your income allows for more savings, you can always make an additional contribution. But this way, your retirement account will have been funded throughout the year.

Don’t let fear hold you back

If you’ve been a salaried employee for most of your career, giving up the security of a stable paycheck can be daunting. But your 50s are actually a great time to take a chance on yourself, Decima insists.

"I recently left a high-paying job of almost 20 years to start my own company as well,” he explains. “The leap was both revitalizing and intimidating.”

If you end up in a self-employment situation that’s mentally and financially rewarding, it may be something you can continue doing during retirement. That could be a great way to stay busy later in life while boosting your income. In the near term, the key is to give yourself grace with retirement plan contributions initially while you adjust, but then prioritize them as soon as you’re in a good place income-wise.

Read More

• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Home Office Tax Deductions: Work From Home Write-Offs
• I'm 51 and My Portfolio Is Up. I'm Planning to Retire at 60 and Want to Start Moving out of Stocks. Is That Smart?
• I Want to Retire, but I Have to Keep Working so My Adult Kids Have Insurance

As 2025 nears its end, it's a good time to evaluate which money moves we should make before the taxable year comes to a close.

Clients often ask whether they should convert funds in tax-deferred retirement accounts into Roth accounts.

Roth conversions are a crucial part of your retirement picture, and there's typically little downside to protecting your wealth from the government in retirement.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

However, there are ripple effects that can impact many aspects of your financial life to consider. They need to be approached strategically before developing a plan.

Evaluate future tax rates

Taxes are the reason why you should consider funding a Roth account, whether it's through conversions or contributions. Any money in a tax-deferred account means only a portion of that money is yours; the rest is due to the IRS.

Future taxation is one of the keys to developing the right Roth strategy for you. We want as much tax-free money as we can to block Uncle Sam and the government from our finances, but it's important to look at it through a strategic lens.

If you're early in retirement and taxes are expected to go down in the future, converting to a Roth at the moment would be a poor choice. But if they're expected to go up, taking advantage of today's low tax rates could be a good choice.

Tax rates are currently low — the top federal income tax rate is 37%, compared with 70% in 1980. The Social Security Trust fund is shrinking, and the federal deficit continues to grow.

Despite the One Big Beautiful Bill Act (OBBB) making 2017's tax cuts "permanent," many experts believe taxes are likely to increase under future administrations. That means it could be a good idea to pay taxes now through Roth conversion and capitalize on growth without the burden of taxes looming over it.

Another factor is how much money you'll make in the future. If you expect to earn more, will it lead to a higher tax rate down the road? That's different for each family, but it needs to be considered.

Pay attention to the ripple effects

Future tax rates are just one piece of how Roth conversions could impact your finances. There could be significant financial consequences if you don't pay close attention.

Accidentally jumping to a higher tax bracket in the present is a common mistake. Each transfer adds to your taxable income and could lead to a higher tax rate, and it can make a substantial difference.

For example, couples with a taxable income from $23,850 to $96,950 have a tax rate of 12%, but that jumps to 22% on any income earned above that range. Avoid this by strategically spacing out your Roth conversions across multiple taxable years.

There are also nuances that can be complicated. If you open a new Roth IRA account, you must wait five years from the beginning of the first taxable year you contributed to withdraw without a 10% penalty.

That means even if you open a new account after you turn 59½ and use a Roth conversion to contribute, you must still wait to withdraw funds penalty-free.

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Other consequences of converting too much to a Roth include incurring a Medicare surcharge, higher taxation on your Social Security and the loss of the marketplace health insurance tax break (if those subsidies are renewed — that's up in the air during the government shutdown).

These are easy mistakes to make, and they can also be easily avoided with proper planning.

Work with a professional

I often hear from people caught in the trap of reading an article with a blanket recommendation about a specific Roth conversion strategy, and they want to follow that advice. Don't do that — it truly depends on your unique circumstances.

Roth conversion decisions shouldn't be made in a matter of months, but years in advance. As a financial professional, it's my job to evaluate your financial picture and understand these nuances.

If you work with accountants and CPAs, they might understand the tax implications, but they don't understand the long-term financial planning aspect of Roth conversions.

Roth conversions are a big deal, and for something as important as your retirement, don't mess around. Consider converting your savings into tax-free wealth and think about working with a financial adviser to help you navigate that strategy.

Insurance products are offered through the insurance business Medalist Wealth Management. Medalist Wealth Management is also an Investment Advisory practice that offers products and services through Impact Partnership Wealth, LLC (IPW), a Registered Investment Adviser. IPW does not offer insurance products. The insurance products offered by Medalist Wealth Management are not subject to Investment Advisor requirements. Investing involves risk, including the potential loss of principal. Guarantees and protections provided by insurance products, including annuities, are backed by the financial strength and claims-paying ability of the issuing insurance carrier. Any media logos and/or trademarks contained herein are the property of their respective owners and no endorsement by those owners of Matthew Eilers or Medalist Wealth Management is stated or implied. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Medalist Wealth Management is not affiliated with or endorsed by the U.S. Government or any governmental agency. Market Guard ® is a firm that provides investment signals, as well as portfolio allocation recommendations, for a wide variety of model portfolios. Market Guard ® does not offer advice or enter into fiduciary relationships. 4857030-09/25

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• Should You Claim Social Security Early or Late? A Financial Adviser Weighs In

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Recent tax changes gave many retirees reasons to cheer.

The jubilation is limited, though, so take advantage while you can before the opportunity to reduce your tax bill slips away.

Changes to certain income tax rules and deductions were included in what President Donald Trump referred to as the One Big Beautiful Bill (OBBB), which was signed into law July 4, 2025, and amended the Tax Cuts and Jobs Act of 2017.

About that extra deduction

The most notable change directed at older Americans is an extra $6,000 deduction for those who are 65 and older. The $6,000 is added to the standard deduction and applies to each individual, so married couples filing jointly can reduce their taxable income by an extra $12,000 if both spouses meet the age requirement.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

The deduction applies to taxpayers whether they itemize deductions or not, but it has limits based on income.

Those with higher incomes don't qualify for the full deduction, which begins phasing out for taxpayers with a modified adjusted gross income of more than $75,000 for individual filers or more than $150,000 for joint filers.

The deduction is not available for individuals with incomes of $175,000 and couples with $250,000 or more.

This extra $6,000 deduction is not going to be around forever, or even all that long. It sunsets after 2028, but for the next few years, it's a golden opportunity for retirees and other older taxpayers to reduce their tax bills.

That's more important for some retirees than they anticipate as they approach retirement.

Taxes don't end with retirement

Taxes follow people throughout life, even into retirement. Although people often expect to be in a lower tax bracket when they retire, that isn't always the case.

Sometimes retirees can get bumped into a higher bracket. For example, many Americans save for retirement through tax-deferred accounts, such as a traditional IRA or 401(k). They weren't taxed on the money they contributed to those accounts.

But after they reach retirement, the money is taxed when they start withdrawing it. The federal government isn't going to wait forever for its money.

Once the people who hold these accounts reach age 73 or age 75, depending on their birth year, required minimum distributions (RMDs) kick in, forcing the account holder to withdraw a certain percentage of their money each year whether they want or need to.

Those RMDs sometimes are enough to bump taxpayers into a higher tax bracket.

A good time for Roth conversions

Clearly, if people aren't careful with their tax planning, they can become trapped as these RMDs come due.

But the good news is there is a way to avoid RMDs, or at least reduce the amount of your savings that's subject to them. The recent tax changes make the next few years an opportune time to take advantage of this strategy.

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The strategy: convert the money you have in a traditional IRA or 401(k) account into a Roth IRA. A Roth grows tax-free, and there are no RMDs. You also don't pay taxes when you withdraw money from them.

You do pay taxes when you make the conversion, but that's why this is a better-than-usual time to move the money into a Roth.

That extra $6,000 tax deduction that will lower your taxable income in the next few years provides a window in which the Roth conversion will have less of an impact than it would without the added deduction.

The key is to make sure you take advantage of this or any other tax change that affects you while you can.

Another bit of good news is that you don't have to figure it out all alone. A financial professional can help you understand how this and other tax changes might apply to your situation and recommend steps you can take to capitalize on them.

So while taxes don't disappear in retirement, there's no need to pay anything above and beyond what you owe.

Investment advisory services offered through Redhawk Wealth Advisors, Inc., an SEC Registered Investment Advisor. SEC Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. Some Investment Advisor Representatives of Redhawk may market their advisory services under the name of Top Rank Advisors, an unaffiliated and separate legal entity. The information presented in this article is the opinion of Top Rank Advisors and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources, but no liability is accepted for any inaccuracies. This is for informational purposes only and its contents should not be construed as investment, tax, or legal advice. Past performance of investments is no indication of future results.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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• Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on Retirement
• Is the One Big Beautiful Bill Really All That Great for Your Retirement?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Taking time out of the workforce to have a child or care for an aging parent often means your taxable income drops.

That "downtime" can be a smart window to convert part of a pre-tax IRA to a Roth IRA — paying tax at today's lower rate, so future growth inside the Roth can be tax-free forever.

Starting in 2025, the math may be even better for some older adults because of larger standard deductions.

A few years ago, my father, Bruce, became a caregiver for his mother and found deep joy working alongside his four siblings to care for her in her final years.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

After a fall and a fractured hip led to her placement in a care facility, the demands of caregiving increased markedly — my father made the 45-minute drive each way nearly every day for almost a year.

That steadfast devotion is the truest definition of a giving heart. Grandma passed away last September at age 96.

One year later, my younger brother Jake and his wife welcomed their first child, a baby girl. Mom took maternity leave and Dad a shorter paternity leave.

Though my father and brother occupy very different stages of life, both served in caregiving roles. Those roles often surface tax-planning opportunities that can be eclipsed by the immediacy of the life event.

One such opportunity, in years when your income is reduced because of parenting or caregiving, is a Roth conversion.

Why Roth conversions work in years you work less

You can "fill up" lower tax brackets with a conversion of the right size while your earned income is temporarily lower.

For example, if you are normally in the 22% tax bracket, but drop to the 12% tax bracket, that is a great opportunity to convert retirement savings from a traditional IRA to a Roth.

You may even find it desirable to convert if you drop from the 32% bracket to 24%, especially if you expect tax brackets to go up in the future or if you expect your income to stay elevated after caregiving years.

Conversions add to ordinary income, but your standard deduction cushions the tax hit.

If you're 65-plus, the age-based deduction and temporary bonus deduction further reduce taxable income.

How to do a Roth conversion

Estimate your 2025 income. Project wages, interest/dividends and any part-year earnings.

Subtract the standard deduction from your estimated 2025 income. (In 2025, that's $15,750 for single filers and $31,500 if you're married filing jointly.)

If you're 65 or older, subtract two additional deductions from your estimated 2025 income:

• The age-based deduction. $2,000 for single filers and $1,600 per spouse age 65+ for those married filing jointly ($3,200 if both qualify).
• The bonus deduction for those 65 and older. From 2025 to 2028, the OBBBA allows retirees over age 65 to benefit from a powerful but temporary tax break — an extra $12,000 deduction per married couple ($6,000 per individual). To qualify, you must be 65 or older and have adjusted gross income (AGI) under $150,000 for married filers (under $75,000 for single filers).

Open the right accounts. You need a traditional IRA, 401k, or other tax-deferred account (source), and a Roth IRA (destination). If you don't have a Roth yet, open one.

Initiate the conversion with a trustee-to-trustee transfer. Ask your custodian to move dollars directly from the traditional IRA (tax-deferred account) to the Roth IRA (after-tax account) to avoid 60-day rollover pitfalls.

Handle taxes smartly. Consider 0% withholding on the conversion and pay the tax from cash using quarterly estimates so more money lands in the Roth.

If you are under age 59½, you must pay withholding outside the conversion (from a checking/savings or non-qualified brokerage account) to avoid a 10% early withdrawal penalty. File Form 8606 with your tax return to report the conversion.

Watch the calendar. Conversions must be completed by December 31 of the tax year (some custodians have earlier processing cutoffs).

Withdrawing funds from your Roth

Each Roth conversion starts a five-year clock for penalty-free access to converted amounts. This clock matters only if you're younger than 59½. After 59½, you can withdraw principal without the 10% penalty.

Separately, Roth earnings have their own five-year rule and are tax-free after your Roth has been open for five tax years (since your first Roth account) and are accessible after age 59½ or for another qualified reason.

Age 65-plus Medicare reminder

If you're on Medicare (or within two years of it), run the numbers before you convert so you don't trigger an unwanted IRMAA jump. IRMAA surcharges are based on modified adjusted gross income (MAGI) from two years prior — for example, a 2025 conversion can affect your 2027 Medicare Part B and D premiums.

IRMAA brackets are not progressive like tax brackets — if you go $1 over, you are fully in the higher premium tier.

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Tax deductions mentioned above will lower taxable income, but not MAGI, so deductions won't shelter a large conversion from IRMAA surcharges. Keep conversions sized to your IRMAA comfort zone.

Used well, a low-income year can be a once-in-a-decade chance to move money into a Roth at attractive tax rates.

Coordinate with your tax pro or a seasoned wealth adviser to tailor the conversion size and timing to your situation.

The information, suggestions, and recommendations included in this material is for informational purposes only and cannot be relied upon for any financial, legal or insurance purposes. Madrona Financial Services will not be held responsible for any detrimental reliance you place on this information. It is agreed that use of this information shall be on an "as is" basis and entirely at your own risk. Additionally, Madrona Financial Services cannot and does not guarantee the performance of any investment or insurance product. Insurance products are offered through Madrona Insurance Services, LLC, a licensed insurance agency and affiliate of Madrona Financial Services. Madrona Insurance Services and individual advisors affiliated with Madrona Insurance Services and Madrona Financial Services receives commissions on the sale of insurance products. Clients are not required to purchase insurance products recommended or to otherwise implement financial advice through Madrona affiliates. When we refer to preparation and filing of tax returns, tax returns are prepared and filed by our wholly-owned sister company Bauer Evans, Inc. P.S., a licensed certified public accounting firm. Madrona Financial Services, LLC is a registered investment adviser with the SEC. Our registration with the SEC or with any state securities authority does not imply a certain level of skill or training. Madrona Financial & CPAs is a registered trade name used singly and collectively for the affiliated entities Madrona Financial Services, LLC ("Madrona") and Bauer Evans, Inc., P.C. ("Bauer Evans"). Investment advisory services are provided through Madrona. CPA services are provided through Bauer Evans. While it's essential to optimize your tax situation, it's equally important to comply with tax laws and regulations. Always ensure that your tax-saving strategies are legal and appropriate for your financial situation.

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• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Weighing a Roth Conversion? Don't Overlook These Five Factors
• Five Ways to Cash In On the $6,000 'Senior Bonus' Deduction
• Is the One Big Beautiful Bill Really All That Great for Your Retirement?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

On September 15, the IRS issued final Treasury regulations implementing provisions of the SECURE 2.0 Act related to age-50 catch-up contributions under employer-sponsored retirement plans.

While many plan administrators were hoping for additional time, the IRS did not extend the nonenforcement period with respect to the Roth catch-up requirement for higher earners, which must still be implemented by 2026.

This means that beginning January 1, 2026, if you participate in a governmental 457(b) plan, are age 50 and older and earned more than $145,000 (indexed annually) in the prior calendar year, you must make age-50 catch-up contributions on a Roth basis.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

The change affects not only you as a plan participant, but also your employer and the plan administrator responsible for tracking wages, managing elections and ensuring proper tax reporting.

For governmental plans, especially those with multiple participating employers or those that may not have offered Roth contributions before, the Roth catch-up requirement introduces new complexity.

Identifying a higher earner

The Roth catch-up requirement applies to participants whose Federal Insurance Contributions Act (FICA) wages exceeded $145,000 (indexed annually) in the prior calendar year.

The Treasury regulations clarified that this threshold is based on Box 3 Social Security wages, not Box 5 Medicare wages. In other words, if you do not participate in Social Security and, therefore, do not receive FICA wages from your employer, then you are exempt from the Roth catch-up requirement.

If you do participate in Social Security, however, the Roth requirement applies to you if your actual FICA wages exceed the $145,000 (indexed annually) threshold for the prior year.

This determination is made separately for each common-law employer, meaning that in a multiple-employer plan, each employer must evaluate the application of the rule to its own employees independently.

If you are an age-50 participant and worked for two different employers in the same year and one employer paid FICA wages that exceeded the threshold while the other did not, only catch-up deferrals made from the wages paid by the employer that exceeded the threshold must be made as Roth. This may impact the employer through which you elect to make your catch-up contributions.

While the default rule requires each employer to assess the threshold independently, the Treasury regulations introduce two circumstances in which an employer can voluntarily aggregate with another employer for purposes of this rule:

• Common paymaster arrangements. If the common-law employer uses a common paymaster, it may be treated as a single employer together with other employers that also use the same common paymaster.
• Controlled group aggregation. Some or all of the employers that are in the same controlled group, as defined under Internal Revenue Code §414(b), (c), (m) or (o), can also be treated as a single employer.

In either case, the plan document must provide for this aggregation. It will be important to understand if the 457(b) plan in which you participate has adopted either of these voluntary aggregation rules.

Deemed Roth elections

To help simplify administration, the Treasury regulations allow a plan to provide that a higher earner within the meaning of this new rule is "deemed" to have irrevocably designated any age-50 catch-up contributions as designated Roth contributions.

In other words, if you, as a higher earner, elected on your salary reduction agreement to make pretax deferrals that exceeded the regular deferral limit ($23,500 for 2025), the plan could provide that any deferrals that exceed the limit — the age-50 catch-up contributions — are "deemed" to have been designated as Roth contributions.

This ensures that your catch-up contributions do not stop during the year, unless you choose to stop them.

Plans that adopt deemed Roth provisions may choose between two approaches for applying the deemed Roth rule:

• Pretax threshold approach. The deemed Roth election applies once a participant's pretax elective deferrals reach the regular IRS limit. This method considers your prior Roth contributions when determining how much of the age-50 catch-up must be Roth.
• Total deferral threshold approach. The deemed Roth election applies once a participant's total elective deferrals (including Roth) reach the regular IRS limit. This may be easier to administer because the plan does not have to look at your earlier deferrals to determine how much of the age-50 catch-up must be made as Roth.

Regardless of the method chosen, plans must ensure that participants have an effective opportunity to make a different election. The IRS does not require a specific notice, but participants must be informed through online portals, plan guides or other communications that they can opt out of the deemed Roth treatment.

It will be important for you to understand how your 457(b) plan chooses to address this new rule, which will dictate how proactive you need to be.

The deemed Roth election is not required to apply until after the participant's elective deferrals exceed the special catch-up limit, if applicable. The special catch-up permits an eligible participant to make deferrals up to twice the regular deferral limit for the three taxable years prior to their normal retirement date. This catch-up can still be made pretax.

New correction methods

Generally, if an age-50 catch-up contribution is made as a pretax contribution when it should have been made as a Roth contribution, the correction is to distribute the age-50 catch-up contribution from the plan to the participant in accordance with the correction method for correcting 457(b) limit failures.

However, so long as the plan provides that age-50 catch-up contributions are "deemed" Roth for higher earners, the Treasury regulations outline two additional available correction methods that allows the contributions to remain in the plan consistent with participant expectations:

Form W-2 correction method. The pretax age 50 catch-up contribution that should have been made as Roth can be transferred (after adjusting for earnings/losses) to the higher earner's Roth account.

The contribution (not adjusted for earnings/losses) must be included in the participant's gross income for the year in which it was made to the plan and reported on Form W-2 as if it had been made correctly as a Roth contribution.

This correction method recharacterizes the pretax age 50 catch-up contribution as if it had properly been made as a Roth age 50 catch-up contribution. This method is available only if the correction is made before your Form W-2 for that year has been issued or filed.

In-plan Roth rollover method. Alternatively, a plan can correct a pretax age 50 catch-up contribution that should have been made as Roth by making an in-plan Roth rollover of the elective deferral (adjusted for earnings/losses) from the higher earner's pretax account to the participant's designated Roth account.

The in-plan Roth rollover would be reported on Form 1099-R, and the contribution (adjusted for earnings/losses) would be included in the participant's gross income for the year of the rollover. This correction is available through the end of the calendar year following the year of the error.

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The same correction method must be applied to all similarly situated participants within the plan year. Plans must have reasonable procedures in place to prevent Roth catch-up errors, which include "deeming" age-50 catch-up contributions to be Roth for higher earners.

No correction is required if the error amount is $250 or less, or if the participant was incorrectly classified as a higher earner owing to a W-2 error that was corrected after the correction deadline passed.

Next steps

To prepare for the upcoming changes, plan sponsors and administrators will need to consider taking the following actions:

• Review payroll systems to ensure accurate tracking of FICA wages.
• Determine whether the plan will adopt an optional aggregation rule for FICA wages.
• Consider adopting a deemed Roth catch-up election provision and determine which design approach is best supported by the plan's administrative processes.
• Review plan materials to ensure the Roth catch-up rules for higher-earner participants (including application of a deemed election) are adequately communicated to them.
• Update correction procedures for noncompliant contributions, including the special correction methods for plans that adopt a deemed Roth catch-up provision.
• Coordinate with recordkeepers and payroll providers to ensure accurate tax reporting and implementation of deemed Roth catch-ups.
• Document plan operation and accurately reflect it in a plan amendment that is adopted before the SECURE 2.0 amendment deadline.

Plan participants, on the other hand, will need to consider taking the following actions:

• Determine whether the new Roth rule will apply to them in 2026 and, if so, whether making their age-50 catch-up contributions as Roth fits within their retirement savings strategy.
• Review plan materials and/or talk to their benefits manager regarding whether an affirmative election to continue deferrals as Roth once the regular limit is met for the year will be required.
• If the plan has adopted deemed Roth provisions, whether their deferrals will be deemed Roth when their pretax deferrals reach the regular limit or their total deferrals reach the regular limit.

Tara Schulstad Sciscoe is a partner at Ice Miller, where she advises employers, plans and trusts on the design and compliance of their employee benefit programs.

Shalina Schaefer is a partner at Ice Miller, where she practices employee benefits with a primary focus on retirement plans of tax-exempt and governmental entities, welfare benefit plans, and church plans.

Lindsay Knowles is of counsel at Ice Miller, where she advises state governments, municipalities and other public entities on a wide range of employee benefits matters.

Related Content

• Roth or Traditional? Seven Considerations for High Earners
• 457 Plan Contribution Limits for 2025
• IRA and 401(k) Contribution Limit Changes for 2025: What to Know
• New SECURE 2.0 Super 401(k) Catch-Up Contribution for Ages 60-63
• How to Correct Errors on Your Social Security Statement and Collect Your Maximum Benefit

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For many affluent families, the end of the year brings more than holiday traditions and travel. It's also one of the most critical windows for financial planning.

When done right, year-end planning can reduce taxes, align finances with family goals and set the stage for greater confidence heading into the new year.

Year-end planning shouldn't be seen as a scramble for last-minute tax breaks. Instead, planning is most effective when it's proactive, tax-aware and rooted in long-term values.

Families are best served when strategies are connected to their most important goals, whether they're maximizing charitable impact, preparing for the next generation or simply confirming lifestyle stability in uncertain times.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Here are seven moves high-net-worth families should consider before December 31.

1. Charitable giving with a donor-advised fund

A donor-advised fund (DAF) is a charitable account that lets you contribute cash or appreciated assets, take an immediate tax deduction and invest the funds to grow tax-free until you decide which charities to support.

It provides flexibility to separate the timing of your tax deduction from your actual giving, allowing for more strategic philanthropy over time.

A DAF can appeal to families focused on long-term charitable planning, particularly those facing a high-income year or a liquidity event.

In 2025, deduction limits were adjusted by the OBBBA, which means contribution plans should be reviewed carefully to ensure every dollar counts.

For those over age 70½, a qualified charitable distribution (QCD) from an IRA may be an even more efficient way to give, as it can reduce taxes on required withdrawals.

Choosing between a DAF and a QCD depends on age, income and philanthropic intent.

2. Use Roth conversions to unlock tax-free growth

A Roth conversion moves assets from a traditional IRA into a Roth IRA, creating a tax bill now in exchange for tax-free growth and withdrawals later.

This strategy is most beneficial during years of lower income, such as the period after retirement but before Social Security benefits and required minimum distributions (RMDs) begin.

The key is weighing the near-term tax hit against the long-term flexibility it provides.

Converting gradually over multiple years can help avoid large spikes in taxable income while building more predictable tax-free income streams for the future.

3. Harvest losses to manage taxes

Tax-loss harvesting may help reduce overall tax liability while keeping a portfolio aligned with long-term investment goals.

When markets have performed strongly, reviewing portfolios for losses that can be used to offset taxable gains is a prudent step.

This approach is particularly relevant after a business sale or other liquidity event that triggers significant capital gains.

In some cases, it may also make sense to spread sales across two calendar years. The goal is to manage the tax impact and take advantage of the opportunity to rebalance holdings with an eye toward future needs.

4. Do not miss retirement contribution and RMD deadlines

December 31 is the firm deadline for RMDs if you are age 73 or older and for beneficiaries with inherited IRAs. Missing this date can result in significant penalties.

It is also important to understand the different deadlines for retirement account contributions. Contributions to employer-sponsored plans such as 401(k)s must be made by December 31, 2025, to count for the 2025 tax year.

By contrast, contributions to IRAs (traditional or Roth) can be made up until the tax filing deadline of April 15, 2026.

Regardless of the deadline, year-end is the time to make sure contributions are on track. At a minimum, families should contribute enough to capture any employer match, but higher contributions may make sense depending on cash flow and tax planning goals.

Acting early and setting reminders helps avoid the year-end rush and ensures opportunities are not missed.

5. Revisit estate and gifting strategies

The OBBBA permanently made estate exemptions higher, which will be set at $15 million per person beginning in 2026. Even with these higher thresholds, year-end remains an important time to consider gifting strategies.

Families may want to take advantage of the annual gift tax exclusion, which allows $19,000 per person in 2025, enabling wealth transfer to children, grandchildren or other loved ones without dipping into lifetime exemption amounts.

While not every family will face estate taxes, intentional gifting helps reinforce family values and encourages multigenerational stewardship.

6. Review liquidity and cash flow for 2026

Looking ahead to next year's goals and expenses is an essential year-end step. Identifying upcoming needs, such as tuition payments, philanthropy or large purchases, provides the opportunity to align cash flow with tax planning.

For example, it may make sense to realize gains or take distributions in 2025 to fund 2026 expenses, especially if doing so fits within current tax brackets.

This forward-looking exercise eases stress and provides clarity, ensuring families enter the new year with a solid financial foundation.

7. Business owners and executives should plan ahead

Business owners and executives often face unique year-end decisions. Concentrated stock positions, restricted stock units (RSUs) and deferred compensation all require careful evaluation.

For executives, managing the timing of RSU sales after vesting events can help reduce tax burdens while also diversifying holdings.

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Business owners nearing retirement may want to gradually reduce exposure to their own company stock to better align assets with long-term investment goals.

Those with options to defer income must weigh the pros and cons of recognizing income now vs later. Each choice should be made in the context of long-term financial security and broader life goals.

The bigger picture

Year-end planning is not just about wrapping up 2025. It's about entering 2026 with clarity and confidence.

By taking time now to align tax strategies, gifting, savings and cash flow with long-term goals, families create the flexibility to handle both expected milestones and unexpected surprises.

Closing out the year with intention lays the groundwork for financial decisions that feel less reactive and more purposeful. A thoughtful December can make the year ahead less stressful, more strategic and ultimately more successful.

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• Best States for Middle-Class Families Who Hate Paying Taxes

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The backdoor Roth IRA is typically touted as a workaround for the wealthy to boost the amount of retirement income they can withdraw tax-free. But there’s upside for heirs who inherit the retirement account, too.

What’s often overlooked is that this retirement savings strategy provides the same tax-friendly perks to heirs — making a backdoor Roth IRA a strategic estate-planning tool for high earners looking to secure their wealth legacy. That’s especially true for wealthy folks who don’t open an IRA for their own retirement, but rather with their heirs in mind.

"It’s a great estate planning technique because your beneficiaries can also take tax-free withdrawals whenever they take money out of the account after you pass," said James Ciamacco, senior financial advisor at Wescott Financial Advisory Group.

What is a backdoor Roth IRA?

A backdoor Roth IRA is a term to describe the strategy of converting nondeductible contributions in a traditional IRA to a Roth IRA.

A Roth IRA, of course, offers a key perk that traditional IRAs do not: tax-free withdrawals.

The catch? There are income limits that preclude folks who earn too much from contributing directly to a Roth IRA via "the front door." In 2026, for example, you’re not eligible to contribute to a Roth IRA if you are a single filer with modified adjusted gross income (MAGI) of more than $168,000 or are a married couple filing jointly with a MAGI over $252,000.

Enter the backdoor Roth IRA.

This loophole gives wealthy savers access to a Roth IRA and dodges the IRS’s income restrictions. It also enables them to pass on assets in the Roth IRA — and the tax-free growth and tax-free withdrawals these retirement accounts offer — to named beneficiaries. Since Roth IRAs are not subject to required minimum distributions (RMDs), the original account holder can keep the money growing tax-free longer, boosting the eventual nest egg an heir will inherit.

How a backdoor Roth IRA works

There are a few more steps to open a backdoor IRA than a standard one.

First, open a traditional IRA and fund it with after-tax, non-deductible contributions (not pre-tax). A non-deductible IRA has no income limitations.

Next, convert the traditional IRA to a Roth IRA soon after. Since you didn’t get a deduction on the contributions to the traditional IRA, you’ll have zero taxes on the conversion amount, although you are subject to tax on gains. (To prove your initial IRA deposits were made with after-tax dollars, you’ll need to fill out Tax Form 8606.)

Be aware, however, that you may have to pay taxes on a portion of a backdoor Roth conversion if you also have IRAs with contributions made with pre-tax dollars, as the IRS treats all pre-tax and non-deductible traditional IRAs as one pool of assets. The so-called "pro-rata" rule adds complexity to the calculation, so it’s best to get clarity from a tax professional or financial adviser.

Contributions through the so-called backdoor are subject to the same limits as other IRAs. In 2026, the max is $7,500 for savers younger than 50 and $8,600 for those 50 and older.

How a backdoor Roth IRA benefits heirs

Tax-free growth. If you inherit a Roth IRA, the money grows tax-free, allowing the account balance to potentially grow over time due to the appreciation of the assets held in the Roth IRA.

Tax-free withdrawals. The wealthy retirement saver who does a backdoor Roth IRA is passing on the benefits of their Roth IRA directly to named beneficiaries.

"Are you setting up a retirement account with your loved ones in mind? You might rejoice to find out that your heirs get to inherit your Roth IRA tax-free," Craig Parker, assistant general counsel at Trust & Will, noted in a blog post.

Let’s say the heir is a daughter in her thirties, in her prime earning years. Unlike a traditional IRA withdrawal, which is taxed as regular income and could, as a result, boost income enough to push the daughter into a higher tax bracket, the Roth withdrawal will be tax-free.

Ciamacco says he has had clients in their prime earning years who inherit a large traditional IRA balance and end up bumping into higher tax brackets, paying as much as 32%, 35%, or 37% in taxes. “Distributions with accounts funded with tax-deductible contributions can really spike your tax bill,” said Ciamacco. Doing a backdoor Roth IRA eliminates those types of dreaded tax bills, he says.

Tax-free withdrawals are especially powerful given the so-called 10-year rule enacted by the SECURE Act. This rule requires most non-spouse beneficiaries of inherited retirement accounts to withdraw the entire balance within 10 years of the original owner’s death. So, the tax-free nature of the Roth IRA withdrawal becomes far more valuable to the heir when taking distributions.

Spouses who inherit a Roth IRA can roll it over into a Roth IRA in their own name.

Diversifies tax treatment of retirement portfolio. The more withdrawal options an heir has when it comes to retirement accounts and other investment accounts, the better.

"A Roth IRA can also help you access new options to diversify your taxes," said Trust & Will’s Parker.

Withdrawals from a traditional IRA or 401(k), for example, are taxed at your regular income rate. Distributions from taxable brokerage accounts are taxed at the lower long-term capital gains rate of 0%, 15% or 20%. In contrast, the Roth IRA allows you to access your money without paying any taxes.

"When it comes to backdoor Roth IRAs, the estate planning piece is one of the main benefits," said Christian DiRusso, senior financial advisor at Altfest Personal Wealth Management.

Read More

• Qualify for Roth IRA Contributions by Lowering Your Income
• Should You Convert a Traditional IRA to a Roth After 60?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Six Changes to IRAs, 401(k)s and HSAs in 2026

Roth conversions, if done right, can lower your tax bill over your lifetime. But be careful. Roth conversions pose traps, and the unwary can easily get caught. Here are eight factors to consider in deciding whether to convert all or part of a traditional IRA to a Roth IRA.

1. Present and future tax rates

A Roth conversion is a taxable event in the year of the switch. So, if you expect that the income tax rate you will pay in retirement will be equal to or higher than the rate on conversion, then switching to a Roth IRA can pay off taxwise. If your tax rate in retirement will be lower, then tax-free Roth distributions are less advantageous.

2. Roths offer several advantages

You can withdraw contributions at any time tax-free. Distributions of Roth earnings are tax-free, provided you are 59½ or older and at least five years have passed since you first put funds in any Roth IRA. Roth IRAs don’t have required minimum distributions (RMDs), so the money can stay in the account, generating tax-free earnings. Also, conversions by the original IRA owner can ease the pain of the 10-year cleanout rule for inherited IRAs. Many non-spouse beneficiaries of inherited Roth IRAs would still have to empty the accounts within 10 years, but the money would be tax-free to them, unlike beneficiaries of traditional IRAs.

3. Multi-year strategy

It’s best to look at Roth conversions as a multi-year planning tool and not as a one-time-only decision. Doing conversions in increments over time helps you space out the tax hit. Review your income and deductions each year and determine with your financial adviser the optimal amount of traditional IRA money to convert so that the conversion doesn’t move you into a higher tax bracket or cause you to lose out on tax breaks.

4. Your adjusted gross income matters

Adjusted gross income, or more specifically, modified adjusted gross income (MAGI), is often used to determine eligibility for certain tax benefits or tax breaks or to determine if you are subject to surtaxes or surcharges. For example, it’s used to see if you qualify for any of these five new temporary tax breaks in the “One Big Beautiful Bill:” The $6,000 senior deduction for people age 65 and older, the $40,000 cap on deducting state and local taxes (SALT) on Schedule A, the deduction for up to $25,000 of tips, the deduction for up to $12,500 of overtime pay, and the deduction for up to $10,000 of car loan interest.

All five tax breaks or benefits begin to phase out at modified adjusted gross income levels above a certain threshold. Your modified adjusted gross income also determines whether you will be hit with the 3.8% surtax on net investment income and whether your Social Security benefits are taxed. You don’t want the additional income from a Roth conversion to cause you to lose deductions and credits you could otherwise be entitled to. Using a multi-year strategy and doing incremental conversions can help you manage this.

5. Medicare premiums

The additional income from a Roth conversion can trigger higher Medicare premiums, known as IRMAA. Individuals with 2023 modified adjusted gross incomes over $212,000 for joint filers and $106,000 for singles pay a monthly surcharge in 2025 for Parts B and D coverage on top of their regular premiums. These figures will rise a bit for 2025 modified adjusted gross income used for figuring 2027 monthly Medicare premium surcharges. Modified adjusted gross income includes income from a Roth conversion.

6. Paying the tax on converted funds

A Roth conversion is treated as a taxable distribution from your traditional IRA when those IRA funds are contributed to the Roth. By default, the IRA custodian will withhold 10% federal income tax. This withheld amount is treated as a distribution to you on which you must pay tax, in addition to the actual money moved to the Roth. In essence, you lose out on a portion of the IRA money being converted into the Roth. This is why financial experts advise you to pay tax owed on the conversion with non-IRA funds, if possible, and you ask the IRA custodian to withhold 0% from the converted funds.

7. IRA owners of RMD age

If you are of RMD age (73 or older for now, though RMD age will gradually rise over the next few years), you must take your annual RMD from your traditional IRA before doing a Roth conversion for the year. This applies whether you convert the full IRA or just a portion. There is another rule for owners of multiple traditional IRAs. You must withdraw your total aggregate IRA RMD for the year before doing a Roth conversion.

8. You can't undo a Roth conversion

Prior to 2018, if you did a Roth conversion, you could undo it and eliminate the tax bill by transferring the funds back to your traditional IRA. This made sense if the Roth lost money shortly after the conversion. Now if you do a conversion, you are stuck with your tax bill.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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• Qualify for Roth IRA Contributions by Lowering Your Income

President Donald Trump's "One Big Beautiful Bill" didn't do away with taxes on Social Security, but it does give seniors age 65 and older an additional $6,000 bonus tax deduction in tax years 2025 through 2028.

Tax experts say now is the time for seniors who qualify for this deduction to take advantage of strategies that can help trim taxes on Roth IRA conversions, required minimum distributions (RMDs), capital gains and the sale of a home.

Here are five ways to benefit from the "senior bonus" deduction.

1. Roth IRA conversions

Arguably the biggest benefit of the $6,000 senior deduction is that it makes Roth IRA conversions a tad more tax-friendly for folks age 65 and older.

Roth IRA conversations are taxable events, as the dollar amount converted from a traditional IRA to a Roth IRA is added to income in the year of the conversion. If you convert $25,000 to a Roth IRA in 2025, that amount will be added to your income.

"Seniors can use the $6,000 deduction to offset this added income," says Alison Flores (PDF), manager with the The Tax Institute at H&R Block.

This new deduction is only available to those age 65 and older by the end of the current tax year who have a Social Security card and who use any tax filing status other than married filing separately, according to H&R Block.

Like many tax provisions in the One Big Beautiful Bill (OBBB), the deduction phases out above a certain income level: Modified adjusted gross income (MAGI or AGI) of $75,000 for singles and $150,000 for those married, filing jointly. It phases out completely for MAGI above $175,000 and $250,000, respectively.

Here's how the extra deduction can reduce the tax hit on a Roth conversion for a married couple. The $12,000 deduction per couple age 65 and older filing jointly is on top of the $33,500 standard deduction. A married 65-plus couple can deduct up to $45,500 in 2025.

Flores lays out a simple example to illustrate the tax savings. Let's say a married couple age 65-plus has $20,000 in Social Security income, $5,500 in interest income, and converts $20,000 from a traditional IRA to a Roth IRA.

The math works like this: The total income of $45,500 from Social Security, interest income and the Roth conversion is offset by the $45,500 deduction they get from the standard deduction plus the new $12,000 per couple 65-and-older deduction.

"Because their deductions equal their income, they owe no federal tax on the Roth conversion," Flores says.

Taking advantage of the larger deduction allows seniors to convert pre-tax IRA funds into a Roth IRA at a lower tax cost.

The higher deduction can also help seniors convert more money into a Roth IRA without bumping up to a higher tax bracket, says Steven Novack, a senior financial adviser at Altfest Personal Wealth Management.

Let's say a 65-plus couple is in the 12% tax bracket (taxable income of $23,850 to $96,950) and has $70,000 in income and takes a full deduction of $45,500 ($33,500 standard deduction and $12,000 extra deduction). Their taxable income falls to $24,500.

If the goal is to maximize the 12% tax bracket, the couple — with the help from the extra $12,000 deduction — can convert $72,450 from a traditional IRA to a Roth IRA and still stay within the 12% bracket.

"If you convert more, after that you're going to be in the 22% bracket," Novack says.

Since this $6,000 per person deduction expires four years from now, Flores recommends spreading IRA conversions over the four-year window (2025-2028), so seniors who qualify for the extra deduction can maximize the extra deduction each year and manage their tax exposure more effectively.

Trimming your tax hit on a Roth IRA conversion isn't the only way to save on taxes using the extra $6,000 deduction. Here are some other ways to cash in.

2. Reduce taxes on required minimum distributions

The new senior deduction doesn't lower the dollar amount of your IRS-imposed required minimum distributions (RMDs). What it does, however, is lower the taxable income of a married couple age 65 and older by $12,000 in a given tax year, which can slash the tax owed on your RMDs and other income.

3. Increase tax savings for seniors who itemize

Normally, taxpayers who itemize on their tax returns can't claim the standard deduction or the additional deduction for seniors. However, the new $6,000 deduction for those age 65 and older is available even if they itemize on their taxes.

This can increase tax savings for seniors who have significant deductions for medical expenses, charitable contributions or other itemized deductions, such as federal deductions for state and local income, and property taxes and interest paid on real estate, says Novack.

Novack says 65-plus tax filers who live in high-tax states with expensive real estate, such as California, New York and New Jersey, can boost their tax deductions even beyond the standard deduction and new 65-plus deduction by taking advantage of the state and local tax (SALT) deduction, which Trump's tax-and-spending bill expanded to $40,000, up from $10,000, through the end of 2029.

"You can really take advantage of those two things to reduce your income and keep your income below the tax thresholds and tax brackets," Novack says.

4. Save taxes on capital gains

Capital gains from the sale of investments, such as stocks and mutual funds, are taxed based on your taxable income, says Flores.

The newest IRS perk allows capital gains to be taxed at 0% for single filers with taxable income of $48,350 or less and joint filers with income less than $96,700.

"Seniors can use the $6,000 deduction to reduce their taxable income and stay within the 0% capital gains bracket," says Flores. "This is especially useful for retirees who want to sell appreciated assets without incurring a tax bill."

A smart strategy in the next few years is to time asset sales in years when other income is low, so you maximize the extra deduction more fully, says Flores.

5. Save on taxes when downsizing

Many adults 65 or older own homes that have appreciated massively over time. While the IRS allows single filers to exclude up to $250,000 of capital gains on a home sale and joint filers $500,000, many seniors have enjoyed home appreciation rates that might produce capital gains beyond the IRS tax-free threshold.

This is where the new $6,000 senior tax deduction (or $12,000 for couples) can play a valuable role, says Flores.

"Seniors who choose to sell their home during the 2025-2028 window can use it to offset the taxable portion of their capital gain on their home sale," she explains. "In short, timing the sale of a long-held home to coincide with the availability of the senior deduction can be a smart strategy to minimize the tax impact of downsizing. It's a way to turn a life transition into a tax-efficient opportunity."

Social Security and Medicare

Flores also clarifies a point that has caused some confusion. The $6,000 senior tax deduction is considered a so-called "below-the-line deduction", meaning it reduces taxable income but does not reduce AGI.

That means it won't impact the calculation of provisional income and, she says, "does not influence AGI-based thresholds used for Social Security taxation or Medicare premium adjustments."

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• The Rule of 240 Paychecks in Retirement

When it comes to your retirement, is the One Big Beautiful Bill (OBBB) as beautiful as advertised? Maybe not.

Beauty, as they say, is in the eye of the beholder. So are the details. When it comes to taxes, the details of the new law — and the overall cost — might not be what many people hope.

This law came about like a shopper who walks into a store and says, "I'll take everything" — then they figure out the cost later. You and I wouldn't do that, nor would any other informed consumer.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

While the OBBB extends the existing 2017 tax cuts and adds new tax cuts (such as those involving tips and overtime), it's also expected to add $3.4 trillion to the deficitin the next 10 years, according to the Congressional Budget Office and the Joint Committee on Taxation.

At some point in the future — perhaps in the middle of your retirement — there likely will be a reckoning as the nation's debt grows. To deal with it, lawmakers will need to drastically cut spending or raise taxes.

As you take advantage of today's tax cuts, you should also think about strategies to reduce your tax bill in the long term.

Stalked by stealth taxes

As people sort through the implications of the OBBB, retirees also need to be aware of what can be considered "stealth taxes" — which aren't necessarily clandestine but do have a way of sneaking up on you.

These taxes essentially penalize you if you've done well financially. Examples of stealth taxes are:

IRMAA. This stands for income-related monthly adjustment amount. It's an additional charge retirees pay on their monthly Medicare Part B or Part D premiums when their income exceeds specific amounts.

Alternative minimum tax. Tax law includes plenty of ways to lower your tax bill, but the federal government wants to make sure high-income earners reduce their taxes only so much.

This is where the alternative minimum tax comes in, making sure those taxpayers pay at least some taxes.

Tax on Social Security. Even Social Security benefits don't escape taxes if your income exceeds a specific amount.

For single filers, 50% of your benefit is taxable if your taxable income is from $25,000 to $34,000, and 85% is taxable if your income is $34,001 or more.

If you're married and filing jointly, 50% is taxable if your income is from $32,000 to $44,000, and 85% is taxable if your income is $44,001 or more.

Wait, doesn't the OBBB end the tax on Social Security benefits?

Not exactly. The bill temporarily provides eligible taxpayers who are 65 and older with an additional $6,000 deduction, which could drop some people below the income levels that trigger the Social Security tax.

However, not everyone qualifies for the deduction, which is phased out for individual taxpayers with modified adjusted gross income above $75,000 and for joint filers with income above $150,000.

Even those who qualify have a limited time to take advantage of the deduction, which ends after 2028.

Being proactive on tax efficiency

Like most people, I don't mind paying less in taxes, but I'm also mindful that it's a good idea to consider making use of today's tax cuts to protect yourself in the future, when the tax situation could be very different.

Being proactive is essential.

The average person can't control what tax laws say — or the fact that those laws could change at any time. You can take steps to reduce your future tax bill within the limits of existing laws.

A few actions you can take to put yourself in better shape when retirement arrives include:

Convert tax-deferred accounts to a Roth IRA. One of the best ways to reduce your tax liability in retirement is to convert your traditional IRAs or 401(k) accounts to a Roth IRA several years ahead of retirement.

Those traditional accounts were tax-deferred, meaning you didn't pay taxes on the money you contributed. But you'll be taxed when you withdraw the money.

After you turn 73, required minimum distributions (RMDs) kick in, forcing you to withdraw a certain percentage annually whether you want to or not.

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With a Roth IRA, you've already paid taxes on the money you contributed, so those accounts grow tax-free, and you don't pay taxes on your withdrawals.

There are also no RMDs. If you transfer money from a tax-deferred account to a Roth, you'll pay taxes when you make the conversion.

For most people, the advantages outweigh the disadvantages. Ideally, you would make the conversions when the market is down, paying taxes on the lower value, then benefiting when the market rebounds and your balance grows in a tax-free account.

Contribute to a Roth 401(k) at work. Many employers have offered traditional 401(k) plans as an employee benefit for decades, but now Roth 401(k)s are an option at some workplaces.

Take advantage of this option if you have it. You don't get the immediate, short-term tax advantage that a traditional 401(k) provides, but you have the long-term advantage that your money will grow tax-free.

Contribute to a health savings account. An HSA is a way to save money to pay for out-of-pocket medical expenses, especially when you have a high-deductible health insurance plan.

Beyond helping you save for unexpected health costs, an HSA also comes with tax advantages. When you contribute to an HSA through payroll deductions at work, you aren't taxed on the portion of your income that you contribute.

You can also earn interest tax-free on the money in the HSA, and you don't pay taxes when you make withdrawals (as long as the money is used to pay for qualified medical expenses).

If your employer doesn't offer an HSA, you can open one outside work if you have a qualified health plan. In that situation, you'd contribute after-tax dollars to the HSA, then claim that contribution as a deduction on your taxes.

As you look to the future and plan your retirement, it's best to work with a financial professional who has experience and understands the nuances of when and how to put these strategies into play.

It's key to take control of your tax situation now — before the rules change yet again.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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• Eight Tips From a Financial Caddie: How to Keep Your Retirement on the Fairway

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The One Big Beautiful Bill (OBBB), signed into law in July, made headlines with promises of tax relief and economic growth. But for retirees, the reality is more complicated and, in many cases, more costly.

While the law extends some favorable tax brackets and introduces deductions for older Americans, several provisions do little to support people already in retirement.

Others could quietly raise your costs or trigger unintended tax consequences if you're not careful.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

If you're retired (or preparing to retire) here's how the new law might affect your finances and what steps to take to protect yourself.

Roth conversions could now do more harm than good

Roth conversions used to be a smart way to control future taxes. With today's lower rates, many retirees converted pretax IRA funds to Roth accounts to lock in those rates and enjoy tax-free growth.

But under the OBBB, this strategy is no longer a slam dunk. Why?

• The new bonus deduction for people 65 and older lowers taxable income, but not adjusted gross income (AGI).
• Roth conversions increase AGI, which determines how much of your Social Security is taxed and whether you'll face IRMAA surcharges on Medicare.
• Some retirees now face a "sneak attack," in which they stay in the same tax bracket, but pay thousands more in Medicare premiums or lose Social Security purchasing power due to added taxation.

What to do: Don't abandon Roth conversions altogether, but be precise. Smaller partial conversions spaced out over several years could help you reduce lifetime taxes without triggering costly ripple effects.

Be sure to run multiyear tax projections that include Social Security taxation and IRMAA thresholds.

It's also a smart idea to calculate your future required minimum distributions (RMDs) at and after age 73.

If those RMDs are projected to push you into the 24% bracket, consider converting enough now to maximize the 22% bracket while you still can.

We don't know what future tax rates will be, but paying taxes now at known rates might be smarter than waiting.

If you're unsure where you stand, get help from an advisor who uses software that models potential long-term tax savings from conversions under current law, which can be a powerful tool for retirement decision-making.

The estate tax exemption rose, but don't let that fool you

The bill raises the federal estate tax exemption to $15 million per person through 2030, but for the majority of retirees, this does nothing to ease the burden of estate clarity, tax efficiency or family coordination.

Unfortunately, many people assume that if they're under the estate tax limit, they don't need to plan. That's a mistake.

Most estate planning issues have nothing to do with taxes and everything to do with:

• Unclear or outdated beneficiary designations
• No instructions for incapacity or health care decisions
• Family disputes about property, debt or inheritance
• Missed charitable or legacy goals

What to do: Revisit your estate plan, regardless of your net worth. A current will, power of attorney, health care directive and coordinated beneficiary structure are essential.

If you're charitably inclined, consider using a qualified charitable distribution (more about this below), or setting up a donor-advised fund (DAF). A DAF allows you to donate a large sum in a high-income year.

For example, if you're converting a large amount to a Roth, you can offset the tax impact while maintaining flexibility in how you give over time.

Medicare cuts might raise your out-of-pocket costs

To fund permanent tax cuts, the OBBB includes more than $490 billion in Medicare reductions in the next decade.

The law doesn't spell out exactly how those cuts will be implemented, but they could result in:

• Higher Part B and D premiums
• Reduced coverage areas for Medicare Advantage plans
• Lower provider reimbursements that make it harder to find care
• More out-of-pocket expenses for medications or specialist visits

What to do: Plan for rising health care costs, even if your income stays flat. Review your supplemental coverage annually, and don't assume your plan from last year will still serve you next year.

Consider building a dedicated health care reserve into your retirement income strategy.

Charitable giving incentives are nice, but not a game-changer

The OBBB includes a new $2,000 charitable deduction for non-itemizers age 65 and older. That's a welcome change, but it might not move the needle much, especially for those who already use qualified charitable distributions (QCDs) from IRAs for tax-efficient giving.

What to do: If you're age 70½ and older and have an IRA, QCDs remain one of the most powerful giving tools available, allowing you to reduce your RMD income and support causes you care about — all without increasing your AGI.

For more flexibility, combine your giving with a donor-advised fund. This can be especially effective if you're doing Roth conversions or realizing gains in a single year and want to offset that added income.

Income stacking could trigger tax surprises

The OBBB keeps lower income tax brackets, but those brackets still interact with other parts of the tax code in ways that can sneak up on retirees. For example:

• RMDs stack on top of other income
• Capital gains could become taxable when layered with dividends, pensions or Social Security
• You could unintentionally cross into a higher effective tax rate even if your marginal bracket doesn't change

What to do: Be intentional about withdrawal sequencing. In some years, it might make sense to draw from Roth accounts to stay under Medicare or tax thresholds. In others, you could realize capital gains up to the 0% tax rate.

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Consider using tax-efficient investments in your non-qualified (taxable) accounts.

By focusing on low-turnover funds, municipal bonds or actively managed portfolios with tax-loss harvesting strategies, you might reduce your annual tax liability while keeping more of your investment income.

The bottom line

The OBBB might have promised sweeping relief, but for retirees, it offers more caution than comfort.

The next few years will require sharper planning, not just to avoid tax surprises, but to build in flexibility for rising health care costs, shifting income needs and legacy goals.

The good news? You still have time to make smart moves that can protect your future. Work with a financial professional who understands how today's rules impact retirement and how to adjust as things evolve.

At Dorhout Retirement Services, we help people retire with clarity and confidence, even when the rules change. If you're unsure how this new legislation affects your income, taxes or estate, we're here to help.

Grant Dorhout offers investment advisory services through CWM, LLC, an SEC Registered Investment Adviser. This article is not intended to provide specific legal, tax, or other professional advice.

For a comprehensive review of your personal situation, always consult with a tax or legal adviser.

Converting from a traditional IRA to a Roth IRA is a taxable event.

Generally, a donor-advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.

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• Seven Medicare Changes Coming in 2026
• Top Four Retirement Withdrawal Strategies to Maximize Your Savings
• Five Under-the-Radar Shifts Investors and Job Seekers Can't Afford to Ignore Under the OBBB
• How to Maximize Your Social Security Now That the One Big Beautiful Bill Is Law

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on transferring 529 plan money to a Roth IRA. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. General rules for 529 rollover to a Roth IRA

Question: We funded a 529 college savings plan for my granddaughter. She used the money in the account for college. She’s now done with school, and there are still unused funds in the account. I heard that we can transfer some of the money to a Roth IRA for her. What are the rules for this?

Joy Taylor: Starting in 2024, some excess 529 funds can be transferred tax-free to a Roth IRA for the beneficiary in a direct trustee-to-trustee transfer. This relief, enacted in the SECURE 2.0 legislation, is subject to important rules:

• The 529 account must have been open for at least 15 years, with the same beneficiary.
• 529 contributions made in the prior five years are ineligible for the transfer.
• Annual 529 distributions for this purpose can’t exceed the annual contribution limit for Roth IRAs, which is $7,000 in 2025.
• And there is a lifetime $35,000 cap.

2. Roth IRA contributions made by beneficiary

Question: My son already contributed the maximum amount of $7,000 to his Roth IRA this year. Can we also do a direct trustee-to-trustee transfer of $7,000 from his 529 account to his Roth IRA in 2025?

Joy Taylor: No. The annual transfer limit from the 529 to the Roth IRA can’t exceed the IRA contribution limit for the year of the rollover. Any actual contributions for the year made to any IRA (traditional or Roth) owned by the beneficiary count against this limit. For example, let’s say a 529 plan beneficiary contributes $3,000 to his traditional IRA in 2025. Only $4,000 of leftover 529 funds can be transferred to his Roth IRA in 2025. If the beneficiary has already maxed out IRA contributions in a year, then no 529 funds can be transferred to the Roth IRA that year.

3. Taxable compensation

Question: If the beneficiary of the 529 plan doesn’t have any taxable compensation for the year, can the 529 plan transfer funds to a Roth IRA in a direct trustee-to-trustee transfer?

Joy Taylor: No. Any transfer from the 529 plan to a Roth IRA must meet all the Roth IRA rules, which means the beneficiary must have taxable compensation equal to or greater than the 529 amount transferred to the Roth IRA.

4. Multiple 529 plans

Question: If a person is the beneficiary of two 529 plans, say one from a grandparent and another from a parent, can each 529 account transfer up to $35,000 to a Roth IRA owned by the beneficiary?

Joy Taylor: It doesn’t appear so. The statutory language says that the $35,000 aggregate limit on direct trustee-to-trustee transfers from a 529 account to a Roth IRA applies with respect to the designated beneficiary. Although the IRS hasn’t yet published any guidance on this, tax and financial experts believe that this means the $35,000 limit applies per person. If an individual is the beneficiary of two 529 accounts, $35,000 (and not $70,000) is the lifetime cap on direct trustee-to-trustee transfers to a Roth IRA.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on 529 Plans
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Reader Questions on IRAs, RMDs and PTPs

If you're in or nearing retirement, a Roth conversion might be the most powerful tool you're not using — or not using correctly.

A Roth conversion done right can dramatically lower your lifetime tax bill, preserve your income flexibility, even protect your surviving spouse from costly tax burdens.

But done wrong, it can backfire — triggering higher Medicare premiums, unnecessary taxation on your Social Security benefits and a surprise tax spike later in life when it might be too late to adjust.

That surprise often comes when required minimum distributions (RMDs) kick in — adding to your income whether you need it or not and potentially forcing you into higher tax brackets and Medicare surcharges.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

The newly passed One Big Beautiful Bill (OBBB) just raised the stakes.

The window is closing — and the bill is rising

While today's lower marginal tax brackets were made "permanent," history — and ballooning federal debt — suggests they're unlikely to stay that way.

According to the Congressional Budget Office, the OBBB adds an estimated $1.7 trillion to the national debt in the next decade, further fueling what many experts believe is an inevitable shift toward higher taxes.

Historically, when the U.S. debt-to-GDP ratio exceeded 100%, marginal tax rates surged — at one point reaching as high as 94% during World War II.

We're in what could be a temporary tax sale — and the clock is ticking.

The case of Bruce and Linda (vs Gary and Marie)

Let's look at two couples who approached Roth conversions very differently.

Bruce and Linda took a proactive, tactical approach. With the help of a tax-savvy adviser, they converted just enough each year to stay below IRMAA thresholds and within a favorable tax bracket.

They used their tax return as a baseline, adjusted for changes each year and defined their "opportunity zone" — the income range that allowed them to convert efficiently without triggering additional taxes or penalties.

The result?

• $577,000 in total tax savings
• $607,000 more left to their children

Gary and Marie, on the other hand, did what most retirees do: nothing. They took the income they needed in early retirement and planned to wait until RMDs started at age 73. The problem? Their pretax retirement accounts continued to grow — faster than their required withdrawals.

When RMDs finally hit, Gary and Marie were forced to take more income than they needed, pay tax on those distributions and still watch their IRA balances grow.

The added income stacked on top of Social Security and investment earnings — triggering IRMAA Medicare surcharges, higher effective tax rates and the full taxation of their Social Security benefits.

Worse, when Gary passed away, Marie had to continue taking the same RMDs — but now paid taxes as a single filer. Her tax bill as a widow soared.

What most people miss about Roth conversions

The biggest myth? That Roth conversions are a one-time decision.

In reality, they're a multiyear planning opportunity, best coordinated with your overall income, tax and Social Security strategy.

Without that context, many retirees follow the default withdrawal order: spend after-tax money first, then pretax, then tax-free. That sequence often leads to the retirement "tax torpedo" — a U-shaped curve in which taxes are low in early retirement, then spike later due to RMDs and widowhood.

The two primary triggers? Oversized pretax balances (and the RMDs that follow) and the loss of joint filing status after a spouse dies.

Why behavioral planning matters, too

Even the best strategy won't help if it never gets implemented.

Many retirees delay action not out of laziness, but because the decision feels overwhelming — and the math is invisible. Without a written road map, most households simply wing it.

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As a Behavioral Financial Advisor®, I see this pattern all the time. Life gets busy. Careers, kids, grandkids, hobbies — and before you know it, a decade flies by.

Every year that passes without action is one step closer to RMDs, market volatility or widowhood — and one less opportunity to control your tax future.

That's why I encourage every client to move from a tax preparation mindset (filing a return in April) to a proactive tax planning mindset (running projections every year). Once December 31 hits, your window for tax-efficient conversions slams shut.

Four steps to get started

You don't need to overhaul your entire plan overnight. Start here:

• Run a baseline analysis using last year's tax return
• Adjust for changes in income or life events (property sale, bonus, etc.)
• Define your "opportunity zone" — the income range you can fill with conversions while staying below IRMAA thresholds and tax bracket bumps
• Adjust annually as your income and portfolio change

Bonus tip: If the market dips, consider converting while account values are temporarily down. You'll be able to shift more shares of your IRA into a Roth at a discounted tax rate.

For example, if your portfolio drops 20%, you'll pay 20% less tax to convert the same number of shares.

The real cost of doing nothing

In one recent scenario we modeled, a couple who skipped proactive planning faced a projected $1.2 million in lifetime taxes. With a tactical Roth conversion strategy, that bill dropped to $643,000 — a $577,000 savings.

But the real shock came in the later years of retirement. When the husband passed away, the surviving spouse — now filing as a single taxpayer — saw her tax bill spike to $95,000 in a single year.

By contrast, in the Roth conversion scenario, that same year's tax bill was just $4,500.

That's the widow's penalty — income drops, but tax rates go up due to the loss of joint filing status, smaller standard deductions and continued taxation on RMDs and Social Security.

You've worked too hard to let the IRS take more than its share

Your retirement shouldn't be about fear — it should be about freedom. The right tax strategy can make the difference between a retirement full of choices … and one limited by taxes you didn't plan for.

Want to make sure that you and the people you care about most keep and use as much of your money as possible — rather than paying more to Uncle Sam?

If your adviser isn't modeling annual Roth conversion scenarios, coordinating with your broader income and Social Security plan and preparing for the potentially devastating impact of RMDs and widowhood, it might be time for a second opinion.

Converting an employer plan account or Traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including but not limited to, a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax adviser before making any decisions regarding your IRA.

Related Content

• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• Is a Roth Conversion for You? Seven Factors to Consider
• Five Windows of Opportunity for Roth Conversions
• I'm a Financial Professional: This Is the Roth Conversion Mistake Too Many People Make
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In 2025, a record 4.18 million Americans will turn 65. For those planning to retire soon, an important question arises: Does converting retirement savings from a tax-deferred account to a Roth IRA make sense — or is it too late?

Before making a decision, it's important to consider the pros and cons of a Roth conversion. A starting point is understanding what a Roth IRA is and how a conversion impacts your tax liability, both in the short and long term.

A Roth IRA is a retirement account to which you contribute after-tax dollars. When you convert pre-taxed or tax-deferred accounts — such as a 401(k), a traditional IRA, a SEP or a simple IRA — to a Roth IRA, you pay income tax on the amount converted in the years you're making the transfers.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

The upside is that Roth IRA distributions are tax-free, as long as you're over 59½ years of age when you make the withdrawals, and your Roth IRA has been open at least five years. In contrast, any withdrawals from tax-deferred retirement accounts are taxed.

Here's one note on the five-year rule for Roth IRAs: It's never too late to make a Roth conversion. Some people assume they have to own the account at least five years before withdrawing money from it.

But what some people don't know is that the five-year rule is based just on the interest earned on the account.

In other words, you can take out your principal (your contributions) from a Roth IRA without penalty within the first five years of having the account.

However, withdrawals of earnings within that first five years are subject to income tax and a 10% penalty if you haven't reached age 59½ upon withdrawal.

Another timing aspect with Roths: Even if you opened a Roth 20 years ago, funded it once and it just sat there, the timeline started when it was opened. The clock doesn't start over if you delay contributing to your Roth for a few years.

The upsides of a Roth conversion

Besides tax-free withdrawals, the pros of a Roth conversion and having a Roth IRA are:

No required minimum distributions. Those with tax-deferred accounts must take RMDs after they turn 73. RMDs add to a retiree's tax burden.

However, with a Roth, retirees aren't forced to withdraw a certain amount calculated by the IRS, whether they need the money or not. This eliminates a potential tax bomb in the future.

Possibly lower taxes in retirement. Converting to a Roth well before retirement can save you significant money down the road. It may also help put you in a lower tax bracket in retirement than you would have been with the addition of RMDs.

Roth IRAs are prudent if you expect your marginal tax rate will be higher in retirement than during your working years.

The downsides of a Roth conversion

Along with the possibility of substantial taxes on Roth conversions in the years you make them, consider these cons:

Potentially higher tax bracket. The amount of money you convert to a Roth from a tax-deferred account could push you into a higher tax bracket.

That's why it's important to strategize with your financial planner about how much to convert each year and over several years.

Increased Medicare premiums. Higher income resulting from a Roth conversion can increase your Medicare premiums. A multiyear process for conversion can help prevent higher Medicare premiums.

Tax-free growth in a retirement account is a great opportunity, but deciding whether to do a Roth conversion depends on your income and related year-to-year tax situation.

For example, retirees who have not yet started drawing Social Security might be in a good position to consider Roth conversions.

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Committing to a multiyear conversion process often makes sense for many people with plenty of working years left. That approach lessens the added yearly tax burden caused by conversions and solidly prepares them for a retirement strengthened by tax-free withdrawals.

It's important to remember this: The converted funds in a Roth may take years before showing gains that put you in a better position than if you had stayed exclusively with a tax-deferred account.

Contributions or conversions? The key differences

Pay attention to the difference in parameters between Roth contributions and conversions. There is no limit to how much you can convert to a Roth IRA in a single year, but it's a good idea to spread the conversions over several years for tax purposes in those years.

However, the IRS limits how much can be contributed annually to any type of IRA, adjusting the amounts periodically.

• Single tax filers cannot contribute to a Roth IRA if their modified adjusted gross income (MAGI) is more than $165,000 in 2025, while for married couples filing jointly, the MAGI limit is $246,000 in 2025.
• The 2025 contribution limit for Roth IRAs is $7,000 for those younger than 50, with catch-up contributions of $1,000 allowed for those aged 50 and up.

Is converting now the right move?

Tax rates are at historic lows, but they are likely to go up in the future. For some people who are currently converting to Roth, their thought process is that they're going to be in a higher bracket down the road, so converting now makes sense.

In the long run, they can benefit significantly from the earnings on the amount converted.

Let's say someone in the 22% tax bracket converts to a Roth now. Then in retirement, with their Social Security, perhaps a pension and other funds, their tax rate increases.

Back when they did a Roth conversion, they paid 22% on, for example, a $10,000 conversion that over the years grew to $100,000 tax-free in their Roth account. They will owe no tax on that $100,000 when they take it out, which, to a degree, mitigates being in a higher tax bracket in retirement.

Why don't more people use Roth conversions? It's about weighing near-term convenience at the expense of possible tax pain in retirement.

The issue is that many CPAs, looking to get rehired every year by reducing their clients' tax burden as much as possible, advise clients to put money into their regular IRA or other tax-deferred accounts.

The bottom line with Roth conversions is that the sooner you do them, the more likely they will benefit you in a big way in retirement.

It's never too late, but as you get closer to retirement, the thought of supporting those hard-earned years with a good chunk of tax-free money looks better and better.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

The views and opinions expressed are for educational purposes only and are not intended to be a recommendation or investment advice. Any guarantees offered by an annuity are backed by the financial strength and claims-paying ability of the issuing insurance company. Centaurus Financial, Inc and Cornell Asset Management are not affiliated companies.

Securities and advisory services offered through Centaurus Financial Inc., member FINRA/SIPC, a registered investment advisor. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in FL, NC, SC, GA, MA, NH, NJ, NY, OH, PA, RI, VA, WI, AR, CA, IL, KY.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: I missed the 2-Year IRMAA Rule. Now, my Medicare costs are skyrocketing. What are my options?

Answer: One of the biggest misconceptions people have about Medicare ahead of retirement is that coverage under it is free. In addition to coinsurance and deductibles, Medicare enrollees are charged a premium for Part B, which covers outpatient care, and Part D, which covers prescription drugs.

Medicare Part B has a standard monthly premium that changes annually. In 2025, it’s $185.

There’s no standard monthly premium for Part D, as those costs are plan-specific. But in either situation, you could end up facing surcharges on your Part B or Part D premiums if you’re hit with an income-related monthly adjustment amount, or IRMAA.

IRMAAs drive the cost of Medicare coverage up for higher earners. And the tricky thing is, they’re based on your income from two years prior.

In 2025, you'll face an IRMAA if your 2023 income was greater than $106,000 as a single tax-filer, or greater than $212,000 as a married couple filing jointly. IRMAA thresholds change annually, so they can be tough to plan for.

But what makes IRMAAs even worse is that a spike in income for a single year could drive your costs upward after the fact. That said, if you’re now facing Medicare IRMAAs and are struggling to keep up with your premium costs as a result, you may have options.

You can always appeal

IRMAAs can drive the cost of Medicare up substantially. But you’re not necessarily stuck with IRMAAs forever, says Brian Schmehil, CFP, Managing Director, Wealth Management at The Mather Group.

“IRMAA is recalculated annually, based on your modified adjusted gross income from two years earlier,” he explains. “If your income has since dropped below the applicable thresholds, your premiums will be adjusted accordingly for the following year — no action required.”

Schmehil says you may also be able to appeal an IRMAA if your circumstances have changed over the past two years and your income was higher two years ago due to a specific reason.

If you’ve since experienced a life-changing event, such as retirement, divorce, the death of a spouse, or the loss of income-producing property, you may be able to reduce your current premiums sooner, he explains.

“You can appeal the IRMAA determination by filing Form SSA-44 with the Social Security Administration,” Schmehil says. “If your appeal is approved, your premiums may be lowered and any overpayments reimbursed.”

Brandon Hill, Senior Advisor at Beckett Financial Group, says it pays to go through the motions even if you’re not sure you’ll be let off the hook as far as IRMAAs go.

“If your income today is no longer what it was two years ago, there is no harm in filing an appeal,” he says.

How to avoid IRMAAs

While appealing an IRMAA is always an option, a better bet may be for you to try to avoid one altogether. To that end, Schmehil suggests being mindful of your income the year of your 63rd birthday if you intend to enroll in Medicare at 65, which is when eligibility typically begins. One thing you could do, he says, is accelerate income prior to turning 63, such as taking gains on investments, so that it doesn’t count against you in IRMAA calculations.

Hill, meanwhile, suggests drawing from investments strategically to avoid IRMAAs.

"Try to avoid withdrawing from tax-deferred, qualified fund vehicles like traditional IRAs or employer plans like 401(k)s, 403(b)s, etc., as all of that income has never been taxed and would be taxable to you as ordinary income," he says.

However, Hill notes that Roth IRA withdrawals do not count toward IRMAAs. It could pay to do a Roth conversion ahead of retirement for this reason.

But be careful with the timing of that conversion. You may want to do Roth conversions ahead of age 63 so they don't drive you over the threshold where IRMAAs would apply, since funds converted from a traditional IRA to a Roth count as taxable income for that same year.

Hill also says that if you're still working at the time you become eligible for Medicare, there are steps you can take to reduce your likelihood of facing a surcharge.

"Maximize contributions to your retirement plans to get your taxable income down," he says.

Another potential option? If you’ve had a spike in income later in life, it could pay to delay your Social Security claim so those benefits aren’t added to your income. Incidentally, delaying Social Security past full retirement age results in boosted monthly benefits for life, so there’s the perk of more guaranteed income to enjoy, too.

Of course, larger Social Security benefits in retirement also put you at risk of future IRMAAs if, combined with retirement plan withdrawals, they result in a very large income. But if your income in retirement is going to be consistently high, IRMAAs may have to become a part of life for you — and an expense to brace for. The plus side is that if you’re liable for IRMAAs year after year in retirement, it means you’re probably enjoying a generous income that softens the blow.

Related content

• The Retirement Rule of $1 More
• Medicare Premiums 2026: Projected IRMAA Brackets and Surcharges for Parts B and D
• Six Medicare Changes Coming in 2026
• Four Proposed Changes to Medicare in the One Big Beautiful Bill Act — and What Ended Up in the Signed Bill