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Roth conversions can be a powerful tool for managing taxes in retirement, often leading to six-figure tax savings over your lifetime. However, there are specific situations where a Roth conversion may not be the best move — and could even end up costing you more in the long run.
In this post, we’ll cover five situations where a Roth conversion doesn’t make sense and why you may be better off leaving your pre-tax retirement funds as they are.
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Before diving into the five situations where Roth conversions may not be ideal, let's briefly review why you might consider a Roth conversion in the first place.
A Roth conversion involves moving money from a pre-tax retirement account (like a traditional IRA or 401k) into a Roth IRA. When you do this, you’ll pay taxes on the converted amount in the year of the conversion.
The goal is to pay taxes on that money at a lower tax rate today rather than a higher tax rate later — often in retirement when required minimum distributions (RMDs) could push you into a higher bracket.
A prime opportunity for Roth conversions is often:
Now, let's explore the five situations where a Roth conversion may not make sense.
If you're currently in a higher tax bracket than you expect to be in the future, a Roth conversion may not be the best move.
Example:
In this scenario, paying taxes now at 32% would be less advantageous than waiting and paying taxes at the lower 22% rate.
Key takeaway: If your future income will likely be lower, paying taxes now may not be worth it.
A Roth conversion requires you to pay taxes on the converted amount — and how you pay those taxes matters.
You can either:
Example:
If you're under age 59½, this becomes even more important. Any amount you withhold for taxes is considered a withdrawal — and will be subject to a 10% early withdrawal penalty.
Key takeaway: If you don’t have cash on hand to cover the taxes, a Roth conversion may not make sense.
One of the main reasons retirees consider Roth conversions is to reduce future required minimum distributions (RMDs).
If you have a large pre-tax balance, RMDs can push you into a higher tax bracket and even increase how much of your Social Security is taxable or raise your Medicare premiums.
However, if your pre-tax account balance is relatively modest, RMDs may not be a significant issue.
Example:
For some retirees, this is manageable and may not push them into a higher bracket.
If you’re married, remember that after one spouse passes away, the surviving spouse will file as a single taxpayer — meaning their tax brackets will be less favorable.
A Roth conversion may help reduce this risk, but if RMDs are unlikely to be substantial, the benefit may be minimal.
Key takeaway: If RMDs aren’t projected to be significant, Roth conversions may not be necessary.
A Roth conversion increases your modified adjusted gross income (MAGI) for that tax year, which can impact your Medicare premiums.
Medicare uses your income from two years prior to determine whether you’ll pay an Income-Related Monthly Adjustment Amount (IRMAA).
Example:
Key takeaway: Roth conversions can inadvertently increase your healthcare costs if they push your MAGI above IRMAA thresholds.
If charitable giving or leaving an inheritance is a major part of your retirement plan, be strategic about which accounts you give from.
Starting at age 70½, you can make qualified charitable distributions (QCDs) directly from your IRA. These gifts:
Since charities don’t pay taxes on donations, there's little benefit in converting funds to Roth first.
If your heirs are in a lower tax bracket than you, they may pay less tax on pre-tax IRA funds than you would by converting those funds to Roth.
Example:
Key takeaway: If charitable giving or legacy planning is a major focus, Roth conversions may not provide the best tax advantage.
While Roth conversions can be a powerful tool for reducing taxes in retirement, they aren’t right for everyone.
To recap, consider skipping a Roth conversion if:
✅ You're in a higher tax bracket now than you expect to be later
✅ You can’t afford to pay the taxes out of pocket
✅ Your projected RMDs aren’t substantial
✅ A conversion would trigger higher Medicare premiums
✅ You're planning to donate to charity or leave funds to heirs in a lower tax bracket
If you’re unsure whether a Roth conversion makes sense for your situation, working with a financial planner can help you create a strategy tailored to your unique retirement goals.
Looking for more guidance? Schedule a free introductory call to get started.
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