Converting Retirement Savings to a Roth IRA? Don't Do This

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“I have $3 million saved for retirement — and I’m going to convert it all to a Roth.”

That was the statement someone made when they called to inquire about working with our team. The guy had read one of my previous articles on Kiplinger, Why I Love Roth IRAs and Roth Conversions, and he was fired up. He said he was convinced tax rates would go up in the near future and that now was the time to take advantage of lower taxes.

After talking with him about his goals for a bit, we pulled out our calculator and ran some quick numbers. Based on his current tax rates, we saw that he would pay over $1 million in taxes if he converted everything today. This wasn’t the news he was hoping for, but he still thought he could benefit from converting some of his money and paying the taxes today.

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I liked his mindset, but he was missing part of the equation. Doing a Roth conversion is about paying your taxes at the lowest tax rate possible, not about paying all your taxes now vs later. Converting all of his savings now would have forced him into the highest tax bracket, resulted in other taxes (such as the net investment income tax, or NIIT) and pushed him into the highest Medicare tier — all things he wanted to avoid.

Joe F. Schmitz Jr., CFP®, ChFC®

Joe has built a comprehensive retirement planning company focused on helping clients grow and preserve their wealth. Under his leadership, a team of experienced financial advisers use tax-efficient strategies, investment management, income planning and proactive health care planning to help their clients feel confident in their financial future — and the legacy they leave behind.

We suggested he look at a plan for converting his tax-deferred money into a Roth IRA over time instead of all at once. This way, he could lessen the tax hit now but still take advantage of the benefits of a Roth conversion.

The biggest benefit is that a Roth conversion allows you the opportunity to possibly pay taxes at a lower rate, since taxes will likely go up in the future. Some provisions in the Tax Cuts and Jobs Act (TCJA), which brought tax rates down, are scheduled to expire at the end of 2025. If they aren’t extended by Congress, taxes will go back up to their 2017 levels. But the U.S. has over $36 trillion in debt. Raising taxes is an obvious way to increase revenue, which can help combat this growing issue.

An added benefit of a Roth conversion

Another reason to convert to a Roth is that it provides diversification. The idea of diversifying your account types is similar to diversifying your investments. You probably don’t have all your money in one stock, right? No, you probably have it spread out among different investments in different asset classes. If you have all your money in tax-deferred accounts (such as a 401(k) or IRA), then all your income will be taxable when it’s time to start taking withdrawals. But since withdrawals from a Roth aren’t taxable, you’ll end up reducing your taxable income if you convert at least some of your money.

You may also want to keep some of your money in tax-deferred accounts to take advantage of the standard deduction. This is the amount of tax-free money the federal government lets you take each year. While this amount changes each year, the standard deduction offsets some of your taxable income. You may also be able to take advantage of some itemized deductions, such as medical expenses or charitable gifts. You won’t be able to write off these items if you don’t have any taxable income.

Do I think tax rates will go up in the future? I do. If tax rates rise, those who have been diligent savers over the years and have most of their money in tax-deferred investments could end up paying much more in taxes when they take withdrawals later.

A Roth conversion isn't for everyone

But while I agree that aggressive Roth conversions could make sense right now for the right people, it’s not the solution for everyone. The key is to work with a professional adviser who provides comprehensive planning to help you calculate how much you can convert to avoid paying too much in taxes today. Not all advisers use advanced planning software to compute taxes and uncover the potential impact to Social Security taxes, capital gains or Medicare premiums, so it is important to ensure your team is doing this level of tax planning.

Back to the guy at the beginning of this article. We were able to find a sweet spot between converting too much (and incurring a higher tax bill today) and converting too little (where it didn’t make a big difference for his future tax bills). I told him he was wise to start thinking about this now because the clock is ticking and the window to take advantage of lower rates could be closing.

If you’re concerned about paying too much in taxes in retirement, I urge you to work with a financial adviser who can help you pinpoint if a Roth conversion is right for you and find your own sweet spot. You could end up saving hundreds of thousands of dollars over your retirement — and making sure you have the income you need to cover a retirement that spans 10, 20 or even 30 years.

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.

Disclaimer

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.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.