Income from a salary or business may have ended, while Social Security, pensions, and required minimum distributions have not yet begun. For some families, those years create room to make deliberate tax decisions before future income pushes their tax bill higher.
A Roth conversion is one opportunity we evaluate during that period. It does not fit every plan, and it should not be treated as a default move. The decision depends on your projected income, tax bracket, Medicare premiums, portfolio, estate goals, and the years ahead.
What a Roth Conversion Does
A Roth conversion moves money from a pre-tax retirement account, such as a traditional IRA or former employer plan, into a Roth IRA. The converted amount counts as ordinary income in the year of conversion, increasing that year’s tax bill.
In exchange, the converted assets grow inside the Roth account, and qualified withdrawals are later tax-free. Roth IRAs also carry no lifetime required minimum distributions for the original owner, which can add flexibility later in retirement and leave heirs a different mix of taxable and tax-free assets. A lower pre-tax balance also means a smaller required minimum distribution once RMDs begin, since the calculation is based on what remains in the pre-tax account, not what has already moved to a Roth.
We compare the tax cost of converting now with the cost you may face later, then determine whether the tradeoff supports the plan.
The Years Between Retirement and RMDs
Many people spend their highest-earning years contributing to a 401(k), 403(b), SEP IRA, or other pre-tax retirement plan. The immediate tax deduction can be valuable while income is high. The assumption is that retirement distributions will occur when income and tax rates are lower.
For many families, retirement income arrives in stages rather than all at once. A person who retires at 60 may have several years before Social Security begins. Required minimum distributions begin at age 73. Once Social Security, investment income, pension payments, rental income, and required distributions begin arriving together, taxable income may rise substantially.
Those earlier years can create room for tax planning before other income sources begin to narrow it. The conversion amount is rarely the same for every client. In some cases, the plan may call for converting enough to reach the top of a selected tax bracket. In others, a fixed annual amount may better fit projected cash flow, investment income, or Medicare thresholds.
Annual Planning Keeps the Strategy Useful
A Roth conversion strategy should be reviewed each year. Tax law can change. Investment income can vary. A large capital gain, business transaction, rental-property sale, or pension election can reshape the tax picture in ways that were not visible twelve months earlier.
Medicare premiums are another part of the calculation. A Roth conversion increases modified adjusted gross income for the year of the conversion and may affect future Medicare Part B and Part D premiums through IRMAA. Those premiums use a two-year income lookback, so an otherwise sensible conversion may need to be adjusted to avoid crossing a threshold by a small amount.
We do more than identify a lower tax bracket. We project income, coordinate with your CPA, review the cash available to pay the tax, and evaluate how a conversion affects future required minimum distributions.
When a Market Decline Can Create an Opportunity
A market decline can create an opportunity to convert assets when their value is lower than it was before the decline. Any larger conversion should be evaluated against the tax cost, the client’s available cash, and the rest of the plan while asset values are depressed.
During the COVID market decline in early 2020, one client already had a multi-year Roth conversion plan in place. The original plan called for converting approximately $40,000 each year, an amount designed to fit within the client’s projected tax picture.
As markets fell, we reviewed the plan with the client and their CPA. The account value had declined sharply, which meant more shares could move into the Roth account for the same tax cost. We tested a $150,000 conversion against the client’s tax bracket, Medicare premium thresholds, investment income, and the cash needed to pay the resulting tax bill. After reviewing those tradeoffs, the team determined that the larger conversion fit the client’s broader plan.
When the market recovered, the rebound occurred inside the Roth account. The client had paid tax while asset values were temporarily low, then let the recovery happen where qualified withdrawals are tax-free.
A Roth Conversion Should Fit the Full Plan
Roth conversions work best as part of a coordinated strategy, often involving several years of measured conversions rather than one large transaction, and sometimes stopping when income rises or another priority takes precedence.
Estate plans matter too. If a pre-tax account is designated for charity, aggressive conversion can work against the plan: charities pay no income tax on distributions, so converting those dollars during your lifetime creates a tax cost a direct bequest would have avoided.
The calculation differs for a non-spouse heir. Since 2020, most non-spouse beneficiaries must empty an inherited IRA within 10 years, often while working and in a higher bracket than the original owner anticipated. Converting part of that balance during your lower-income years can shift the cost to when you pay less, and give that heir tax-free withdrawals during the 10-year window instead of a compressed, high-bracket scramble.
Your portfolio, retirement income plan, estate documents, Medicare coverage, and tax projections should all inform the decision.
At Richard P. Slaughter Associates, we work alongside your CPA to review Roth conversion opportunities in the context of your current income, projected RMDs, Medicare exposure, and the life you want your wealth to support. Our advisory team, where every advisor holds the CFP® certification or is an active candidate in the CFP® certification program, brings that training to multi-year conversion projections, where a decision made in one year has to be weighed against Medicare thresholds and RMDs that may not arrive for another decade. The firm has been fee-only and fiduciary since 1991.
If any of this resonates — whether you have recently retired, expect required minimum distributions to change your tax picture, or want to understand whether a Roth conversion belongs in your plan — we would welcome a conversation.
CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
