Is It Too Late to Do a Roth Conversion if You're Retired?

Roth conversions are a popular way for people to reduce their tax burden over the long haul, and people often start making those conversions when they are a few years away from retirement.

The goal is that once they reach retirement, they will be able to take money from their retirement account without the IRS claiming a chunk of the withdrawal. Money withdrawn from a traditional IRA or 401(k) is taxed as ordinary income, while withdrawals from Roth IRAs are not taxed at all (as long as you follow the rules).

That’s why so many people — and financial professionals — are high on Roth conversions. But if you’ve already reached retirement without making the conversion, the window of opportunity has not closed. Despite what some people seem to think, there is no age limit on when you can start the conversion.

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Yes, you can even do it if you have already started your required minimum distributions (RMDs), those forced withdrawals that affect tax-deferred accounts — but not Roths — when retirees reach age 73.

Let’s take a look at reasons why a Roth conversion can be a good idea, even if you are already retired:

Watching out for your spouse after you're gone

Many couples file joint returns but don’t consider how their tax situation will change when one spouse dies. At that point, the surviving spouse becomes a single filer, and that has repercussions on the amount of taxable income they have and the tax bracket they fall into.

Why so?

In some ways, the tax code favors couples. For example, in 2024 a couple filing jointly is in the 12% tax bracket even with a taxable income as high as $94,300. But a single filer is bumped up to the 22% bracket once their income reaches $47,150.

Also, the standard deduction is lower for a single filer, making it more difficult to whittle down the taxable income so that they fall into a lower tax bracket. Each time a retiree draws money from a traditional IRA or 401(k), that money is taxed. A Roth would allow their money to grow tax-free, and they wouldn’t pay taxes on withdrawals.

Keeping Medicare premiums as low as possible

If your income grows too high, a surcharge called an income-related monthly adjustment amount (IRMAA) is added to your monthly Medicare premiums for Part B and Part D. A Roth conversion once again can come into play here, keeping your taxable income from crossing the threshold where IRMAA would kick in. For single filers in 2024, that threshold is $103,000. For couples, it is $206,000.

More control over funds in retirement

As noted earlier, tax-deferred accounts have an RMD that takes effect when you turn 73. At that point, you must withdraw a certain percentage from your accounts each year — whether you want to or not. That is so the federal government can collect those taxes you deferred.

A Roth does not come with an RMD, so you have more flexibility to make withdrawals when you want to — not when the IRS tells you to.

Taking care of your beneficiaries

Tax ramifications also come into play for your beneficiaries who inherit your retirement accounts. When someone inherits a traditional IRA, they will be subject to taxes on withdrawals. A Roth, though, brings them tax advantages because withdrawals of contributions from an inherited Roth are tax-free, and most withdrawals on earnings from an inherited Roth are tax-free as well. The exception is if the withdrawal is taken when the Roth account is less than five years old. In that case, the money could be taxed.

Some caveats to keep in mind

As you can see, there are a number of reasons someone already in retirement would want to consider converting a tax-deferred account to a Roth. As with many things, though, this comes with caveats.

Your money is taxed at the time that you move it from the tax-deferred account to the Roth, so you need to take that into consideration. Individual situations vary, but you might want to avoid converting a large amount at once that would bump you into a higher tax bracket.

When I’m working with clients, I try to keep them out of the 32% tax bracket. If clients are already in the 32% bracket or higher, I typically don’t recommend they do a conversion, although there can be exceptions. For example:

• Sometimes it comes down to how they want to use their money. If a client in those higher tax brackets plans to spend all of their assets by the end of their lifetime, then the focus is on maximizing their income, and I wouldn’t recommend the Roth conversion.
• But if that client is focused on legacy planning — leaving a substantial amount to heirs — then I would recommend a Roth.

Clearly, Roth conversions can be advantageous, but the details of when and how to handle them can be confusing. It’s a good idea to consult with a financial professional who understands all of the subtleties.

A Roth conversion could be the right step for bringing more financial stability to your retirement — even if that retirement is already in full swing.

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.

Investment advisory and insurance services offered through Decker Retirement Planning Inc., a Registered Investment Adviser.

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