Conversion: To Roth or Not to Roth, that is the Question

​A Roth IRA conversion lets you move money from a regular IRA into a Roth IRA. You pay taxes now, but the money grows tax‑free after that. Many people use this strategy as part of their financial planning, especially when they are getting ready to retire.
Roth conversions can help:

• Lower future taxes
• Reduce estate taxes
• Give your family tax‑free money later

• Assist you in minimizing Medicare (IRMAA) expenses

 
Roth IRA conversions are a popular financial planning topic, especially regarding their timing and suitability. Previously, I argued that converting makes clear sense for clients facing an estate tax, since it lowers the taxable estate’s size.  That article was called “Shrinking the Estate, Growing the Legacy: Why Roth Conversions Can Be a Beautiful Thing.”
 
Another straightforward planning opportunity is converting IRAs to Roth IRAs when you anticipate a period of lower taxable income. This allows one to level out their income and avoid higher tax brackets (or IRMAA problems) later as government mandated RMDs (required minimum distributions) force traditional IRA distributions.
 
A Simple Example
Let’s look at a couple--John and Mary.

• John is 65 and ready to retire.
• Mary is younger and still working.

For a few years, they project that their income will decline because John has stopped working. But later, their income will go up again when Social Security and required IRA withdrawals (RMDs) start.
This rise in income can push them into a higher tax bracket (as noted below).

​How Roth Conversions Help
Between ages 65 and 69, John and Mary have a window where their income is lower. This is a great time to convert some of their IRA money into a Roth IRA.
By paying some taxes now:

• They avoid bigger tax bills later
• They keep their tax rate lower for more years
• They save more than $102,000 over time

You can see this in the tax estimate below post a hypothetical series of Roth Conversions.

​Note: the spike in estimated income tax at ages 89-90 is due to the couple being self-insured for long-term care. They withdrew heavily from tax-deferred assets to cover these costs, leading to higher potential taxable income during those years.

Why Roth IRAs Help Your Family Too
A Roth IRA has no required minimum distributions (RMDs). If John and Mary leave Roth IRAs to their children:

• The kids don’t owe taxes on withdrawals
• They can wait up to 10 years before taking out all the money
  
  

This means their family potentially gets more tax‑free growth.
 
Want to Know If a Roth Conversion Is Right for You?
If you want help deciding, reach out to our team at InTrust Advisors.

We offer wealth management and financial planning designed to help you keep more of your hard‑earned money and build a strong retirement.

Click the link to schedule a free consultation.