Should You Do a Roth Conversion? A Guide for High-Net-Worth Retirees
Should You Do a Roth Conversion? A Guide for High-Net-Worth Retirees
Introduction: The Retirement Tax Trap You Might Not See Coming
Many high-net-worth retirees assume that their tax burden will go down in retirement. Unfortunately, that’s not always the case. Required Minimum Distributions (RMDs), Social Security taxes, and rising tax rates can leave retirees with a bigger tax bill than expected.
If you have a significant amount of money in tax-deferred accounts like a 401(k) or Traditional IRA, you could be setting yourself up for higher taxes in retirement. That’s where Roth conversions come in.
In this guide, we’ll explore:
✅ What a Roth conversion is and how it works.
✅ Who benefits the most from Roth conversions.
✅ The best timing for conversions to minimize taxes.
✅ How to convert strategically to avoid tax pitfalls.
Let’s dive in!
What Is a Roth Conversion?
A Roth conversion allows you to move money from a tax-deferred account (Traditional IRA, 401(k)) into a Roth IRA by paying taxes on the converted amount now. The benefit? Once your money is in a Roth IRA, it grows tax-free and can be withdrawn tax-free in retirement.
✔ Traditional IRA/401(k): Pay taxes later (when you withdraw).
✔ Roth IRA: Pay taxes now, but all future growth and withdrawals are 100% tax-free.
If tax rates rise in the future (which is highly likely given government debt and tax policies), having tax-free income in retirement can be a huge advantage.
Who Should Consider a Roth Conversion?
Roth conversions aren’t right for everyone, but they can be a powerful strategy for:
✔ Retirees in a Lower Tax Bracket Before RMDs Begin
- If you retire before age 73, you may have low taxable income for a few years.
- Converting money to a Roth before RMDs kick in lets you fill lower tax brackets now and avoid high RMD taxes later.
✔ High-Net-Worth Individuals with Large Pre-Tax Accounts
- If you have $1M+ in a Traditional IRA or 401(k), future RMDs could push you into a higher tax bracket.
- Converting to a Roth reduces future RMDs and lowers lifetime tax bills.
✔ Anyone Concerned About Future Tax Increases
- The current Tax Cuts and Jobs Act (TCJA) rates expire in 2026. If tax rates rise, Roth conversions lock in today’s lower rates.
✔ People Who Want to Leave a Tax-Free Inheritance
- Roth IRAs are not subject to RMDs during your lifetime.
- Heirs can inherit a Roth IRA tax-free, making it an excellent estate planning tool.
When Is the Best Time to Do a Roth Conversion?
Timing is everything. The goal is to convert when your tax rate is lower than it will be in the future.
💡 Ideal Roth Conversion Windows:
✅ Between Retirement and RMD Age (Before 73): Your income is likely lower, making it the perfect time to convert without pushing into a high tax bracket.
✅ Years with Lower Income: If you take a year off work or have fewer income sources, converting in a low-income year saves on taxes.
✅ Before Tax Laws Change in 2026: If tax rates rise after the TCJA expires, converting now could lock in today’s lower rates.
🚫 When NOT to Convert:
❌ If the conversion pushes you into an unnecessarily high tax bracket.
❌ If you need to pay conversion taxes from the IRA itself (always pay from cash or other taxable accounts).
How to Convert to a Roth Without Overpaying Taxes
To avoid costly mistakes, follow these four steps when doing a Roth conversion:
Step 1: Decide How Much to Convert
Instead of converting all at once (which could push you into a high tax bracket), spread conversions over multiple years to stay in a lower bracket.
💡 Example Strategy:
- Convert just enough each year to stay within a lower tax bracket (e.g., the 22% or 24% bracket instead of jumping into the 32% bracket).
- Fill up tax-efficient brackets without triggering unnecessary taxes.
Step 2: Use Tax Brackets to Your Advantage
Here’s how much income you can have before hitting the next tax bracket in 2025 (for married filers):
Tax Bracket
Taxable Income (Married Filing Jointly)
Taxable Income (Single Filers)
12%
Up to $94,300
Up to $47,150
22%
$94,301 - $201,050
$47,151 - $100,525
24%
$201,051 - $383,900
$100,526 - $191,950
32%
$383,901 - $487,450
$191,951 - $243,700
35%
$487,451 - $731,200
$243,701 - $609,350
37%
Over $731,200
Over $609,350
🚀 Smart Conversion Strategy:
✔ If you’re in the 12% or 22% bracket, you may want to convert up to the top of the 24% bracket while keeping taxes reasonable.
✔ Avoid crossing into the 32%+ brackets unless there’s a strong tax-saving reason.
Step 3: Pay Taxes from a Non-Retirement Account
💡 Pro Tip: Always pay Roth conversion taxes with cash savings or a taxable brokerage account, NOT from the IRA itself.
Why? Using IRA funds for taxes reduces your future tax-free growth.
Step 4: Avoid Medicare IRMAA Surcharges
Medicare premiums increase if your Modified Adjusted Gross Income (MAGI) is too high.
MAGI (Married Filing Jointly)
Part B Premium (2025)
Part D Surcharge (2025)
$212,000 or less
$185.00
$46.50
$212,001 - $266,000
$259.00
$60.20
$266,001 - $334,000
$370.00
$81.80
$334,001 - $400,000
$480.90
$103.50
$400,001 - $750,000
$591.90
$125.10
Over $750,000
$628.90
$132.30
🚀 Strategy: If you’re near an IRMAA threshold, convert only enough to stay below the next bracket and avoid higher Medicare costs.
Is a Roth Conversion Right for You? Let’s Find Out
A Roth conversion can be a powerful tax-saving tool, but only if done correctly. The key is timing, tax bracket planning, and avoiding IRMAA surprises.
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