This Late-in-Life Roth Conversion Opportunity Spares Your Heirs
Expensive medical care in the later stages of life is an unpleasant reality for many, but it can open a window for a Roth conversion that benefits your heirs.


If you’ve read my articles or others on Roth conversions, you probably know the most obvious opportunity for Roth conversions exists in the period between retirement and when you start to tap Social Security and retirement accounts.
If you look at a tax projection for someone who is about to retire, rates are often near their peak. They fall off a cliff when wages go away, and then they pop up again once you have required minimum distributions (RMDs) and Social Security income.
If you twist your head a little farther to the right, you’ll see, in our projections, another drop. That drop in your final years of life is due to high medical expenses, which reduce taxable income. While your tax rates are unlikely to go higher, which is the tell-tale sign to consider a Roth conversion, it is likely that your rates at this point are lower than those of your beneficiaries, who will inherit these accounts and pay taxes on the distributions.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Higher medical expenses mean lower taxable income
Taxable income is gross income less deductions. Most people no longer itemize deductions since the Tax Cuts and Jobs Act of 2017 (TCJA), which overhauled our tax code and increased the standard deduction. However, once medical expenses have a significant impact on income, it’s likely that your deductions get above the standard deduction. The higher your deductions, the lower your taxable income. The lower your taxable income, the more appealing Roth conversions can become.
At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.
Medical expenses tend to increase as we age. However, entering a retirement community or nursing home can cause those partially deductible expenses to skyrocket. Under the current code, medical expenses in excess of 7.5% of modified adjusted gross income (MAGI) are deductible. When you enter a continuing care retirement community (CCRC) with a lifecare contract or modified contract, some portion of your entry fee and monthly fee are considered to be a pre-paid medical expense. Those are deductible. The finance office at the community should be able to tell you what percentage of the care is considered medical. IRS Publication 502 provides a much more in-depth explanation.
A Roth conversion opportunity
The period when your medical expenses peak late in life has to be one of the least likely times you would analyze your tax return to uncover the silver lining of your less-than-ideal situation. Often, we uncover this opportunity through conversations with clients who are handling their parents’ affairs. We rely on financial planning software to get a rough sense of what future rates will look like for the owner and for the beneficiaries. We rely on tax planning software to run the actual conversion calculation. You can access a free version of the financial planning software we use.
Aging sucks. Paying astronomical amounts for help, medical and otherwise, sucks. Once again, a Roth conversion is probably the last thing on your mind. Try to reframe this as a tax sale. You may be able to pay today at a lower rate than your beneficiaries will in a decade. Maybe that won’t lessen the blow, but those beneficiaries will thank me down the line.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.
-
Stagflation: What It Is and Why Retirees Should Care
Stagflation — the economic bogeyman of the 1970's — may return to the US. Here's what it could mean to your retirement.
By Donna Fuscaldo Published
-
Why Losing Your Job Could Be the Best Opportunity to Plan Your Future
Amid this uncertainty lies an opportunity for strategic reassessment and personal growth.
By Mario Hernandez Published
-
Stagflation: What It Is and Why Retirees Should Care
Stagflation — the economic bogeyman of the 1970's — may return to the US. Here's what it could mean to your retirement.
By Donna Fuscaldo Published
-
Can a New Manager Cure Vanguard Health Care Fund?
Vanguard Health Care Fund has assets of $40.5 billion but has been ailing in recent years. With a new manager in charge, what's the prognosis?
By Nellie S. Huang Published
-
Retirement Savings On Track? How Much Should You Have Between 61 and 65
JPMorgan’s guide can help baby boomers determine whether they have saved enough for a retirement pegged to their income level.
By Donna Fuscaldo Published
-
Family Caregivers Need Help. These Are the Policies They Say Would Make the Biggest Difference
There are millions of people across the country caring for elderly or disabled family members. New research shows the key changes that would improve their lives and the lives of those they care for.
By Christy Bieber Published
-
What You Don't Know About Annuities Can Hurt You
Lack of awareness leads many to overlook these potent financial tools, and with the possibility of running out of money in retirement, that could really hurt.
By Ken Nuss Published
-
Three Keys to Logical Investing When Markets Are Volatile
Focusing on these market fundamentals can help investors stay grounded rather than being swayed by emotion or market hysteria.
By Dennis D. Coughlin, CFP, AIF Published
-
Yes, the Markets Are Spooked, But You Don't Have to Be
It's human nature for investors to freak out in a downturn. But with a little discipline, you can overcome the urge to sell and stay focused on long-term goals.
By Jimmy Lee, IAR Published
-
Remembering Bogle: A New Standard for Municipal Investing
Improvements in technology, data, systematic trading and risk analytics have led to more successful municipal indexing.
By Paul Malloy Published