I'm a Financial Professional: This Is the Roth Conversion Mistake Too Many People Make

Here’s something you probably don’t want to hear: You’re likely doing your Roth conversions wrong.

Most people take an all-or-nothing approach. Either they convert all their money at once in one big, painful swoop — triggering a hefty tax bill — or they skip conversions altogether and end up paying more in taxes over the long term.

But if you take a more gradual, strategic approach, Roth conversions can become a powerful way to manage your tax burden over time, especially in retirement.

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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.

Rather than spiking your income in a single year with a full conversion, it often makes more sense to "fill" your lower tax brackets with partial conversions spread over multiple years.

This way, you can reduce the taxes you’ll pay on required minimum distributions (RMDs) later, avoid surprise increases in Medicare premiums and keep more of your Social Security benefits tax-free.

In short, you can smooth out your retirement tax bill instead of setting yourself up to pay more later.

In this article, we’ll explore how to use Roth conversions to your advantage, helping you mitigate taxes and keep more of your money where it belongs.

Withdrawal sequence can make (or break) your retirement taxes

When people retire, they typically draw income from a mix of retirement accounts: taxable, tax-deferred (like traditional IRAs and 401(k)s), and tax-free (like Roth IRAs). Because each account type is taxed differently, the sequence of withdrawals matters more than most people realize.

Concentrating your retirement savings in tax-deferred accounts might help you delay taxes in the short term, but it comes at a cost: You’re also building a bigger tax liability down the road, when tax rates may be higher.

Plus, as you age, your required minimum distributions (RMDs) from these accounts grow, which can push you into a higher tax bracket at a time when you have fewer options to adjust.

Roth conversions give you more control over this sequence. By converting portions of your tax-deferred accounts into Roth accounts before your RMDs kick in, you pay taxes now, while you’re in a lower bracket, and position yourself for tax-free withdrawals later.

The goal isn’t to convert everything at once. You want to convert just enough each year to stay within your current tax bracket.

Think of it like filling a bucket: Once it’s full, stop and wait for the next year to fill it again.

Dodging retirement's hidden tax traps

Taxes aren’t the only thing to worry about in retirement. Hidden costs can sneak up in the form of higher Medicare premiums and taxes on your Social Security benefits, both of which are tied to your income.

Medicare's income-related monthly adjustment amount (IRMAA) increases your Part B and Part D premiums if your income crosses certain thresholds.

Similarly, if your provisional income (which includes half your Social Security benefits plus your adjusted gross income and all tax-exempt interest) exceeds specific limits, you could owe taxes on up to 85% of your Social Security payments.

This is where Roth conversions come into play again. By strategically converting portions of your traditional IRA to a Roth before you begin collecting Social Security or enrolling in Medicare, you can keep your income under the thresholds.

Even once you’ve started these programs, partial conversions might still help you stay in a manageable range, reducing the risk of triggering higher premiums or taxation on your benefits.

The key is planning your conversions carefully so that you’re not inadvertently causing the very tax headaches you’re trying to avoid.

The window of opportunity for smarter Roth conversions

The thing about Roth conversions is that your timing is just as important as your technique. Many retirees experience "gap years.” This is the period between when they stop working and when they start collecting Social Security or face RMDs. These years are the perfect time for Roth conversions.

Without salary income, your taxable income could (and likely will) drop significantly, creating room to convert retirement assets at lower tax rates.

For example, if you retire at 62 but delay Social Security and RMDs until your late 60s or early 70s, you have several years to take advantage of lower tax brackets.

Market conditions can also work in your favor. If your portfolio experiences a downturn, converting assets while they’re temporarily depressed means you’ll pay tax on a lower value while still capturing the future rebound inside your Roth account tax-free.

You can also use a calendar-year strategy:

• Some people prefer to wait until the end of the year to execute conversions, when they have better visibility into their income and deductions.
• Others prioritize earlier conversions to maximize potential growth in the Roth account.

Either approach works. What matters most is that you’re intentional about your timing.

Roth conversions in action

Let’s take a look at how this strategy works in practice. Say that Mary, a recently retired 62-year-old, plans to delay Social Security benefits until age 67 and won’t start taking RMDs until 73.

In the meantime, she’s living off her savings and some part-time consulting income, keeping her taxable income modest.

Working with her financial professional, Mary starts to gradually convert portions of her traditional IRA to a Roth IRA. Each year, they figure out how much she can convert while staying within the 22% federal tax bracket and avoiding IRMAA surcharges.

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By the time she reaches her RMD age, Mary has meaningfully reduced the balance in her traditional IRA, which means smaller future RMDs and lower taxes on her Social Security benefits.

Without this strategy, Mary could have faced larger RMDs and potentially higher Medicare premiums. But with it, she’s been able to smooth out her tax liability over time and keep more control over her retirement income.

The bottom line

When used thoughtfully, Roth conversions are a smart way to manage your tax bill in retirement, avoid costly surprises like higher Medicare premiums or taxes on your Social Security benefits, and give you more flexibility with your income later on.

By gradually filling your lower tax brackets with partial conversions and timing those moves to fit your retirement income gaps, you can spread out your tax burden and create a more efficient, predictable future.

And remember, it’s always worth working with a trusted financial professional to map out a strategy that fits your goals and makes the most of your opportunities.

Related Content

• How the IRS Taxes Retirement Income
• Financial Fact vs Fiction: This Roth Conversion Myth Could Cost You
• From Tax-Deferred to Tax-Free: Navigating Taxes in Retirement
• In What Order Should You Tap Your Retirement Funds?
• You've Saved for Retirement: Now You Need a Safe Income Plan