Three Reasons a Retiree Might Consider Roth Conversions

As a fair and balanced blog writer, this week I am following up a blog about why retirees should not worry about Roth conversions with three reasons why such a move could be a good idea.


  1. It’s a nice thing to do for your kids: Any IRA money inherited by your kids will need to be taken out by 10 years after your death.  Let’s say Junior inherits a $500,000 IRA from Dad.  Dad has lived a long and fulfilling life; Junior is in his prime earning years when Dad dies.  Junior is in the 37% tax bracket.  If Junior decides to take $50,000/year over 10 years (just an example, he doesn’t have to do it this way), 37% plus state income tax will be paid on the distributions.


On the other hand, if Dad does Roth conversions during his lifetime, assuming Dad is in a lower tax bracket, the income taxes paid on the inherited money would be much lower.  Junior still has to withdraw a Roth IRA over 10 years, but he won’t owe income taxes at his high bracket.  Dad paid the taxes for him.


  1. Tax brackets could go up: The Tax Cut and Job Acts has provisions that are set to sunset for tax year 2026.  If that happens, future Roth conversions could cost you more than doing them now.  But who knows?  Tax law is unpredictable.


  1. It could be a good time to diversify your retirement income buckets: If you are in a very low tax situation in a particular year (AND have the cash set aside to pay for the conversion), it could be a good opportunity to get some tax free money growing.


Tax-free (Roth) money is fun to use for vacations, remodels, or other blips in your spending.  The money feels “cheaper” to use when you aren’t paying taxes it withdraw it.


So, there you have it.  More vague, wishy washy advice from Sullivan Financial Planning.  The moral of the story is this:  Don’t let the media tell you what to do with your money.  Work with your financial advisor to see what moves fit your situation and values.




Share this post