Roth retirement accounts have gained popularity since their introduction in 1997. But for many retirees, they weren’t even an option when we first entered the workforce. Most of us started with a Traditional 401(k) or IRA, making today’s Roth conversations often centered around conversions.
The concept of a Roth conversion is fairly simple: Funds come out of a Traditional retirement account, you pay all the taxes now, the rest goes into a Roth IRA, where you can potentially enjoy tax-free growth and withdrawals, subject to market conditions. And while the appeal of tax-free growth is clear, things can get a little muddy when trying to determine if the up front tax hit for a Roth conversion is actually worth it in the long-run. That’s why we’re answering five common questions to help you decide if a Roth conversion fits into your retirement strategy.
1. Will converting to a Roth now push me into a higher tax bracket?
Yes, a Roth conversion very well could push you into a higher tax bracket, but only for the tax year the conversion takes place. The amount you convert is considered taxable income for the tax year the transaction takes place.
Here’s a look at the current Federal tax brackets for 2025. You can estimate what bracket you’ll be in by considering how much income you intend to bring plus the amount of your Roth conversion. Just remember that this number can fluctuate due to a number of factors beyond just your income, so reviewing with an advisor is the best way to properly plan your conversion while remaining tax conscious:
| Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households |
| 10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
| 12% | $11,925 to $48,475 | $23,850 to $96,950 | $17,000 to $64,850 |
| 22% | $48,475 to $103,350 | $96,950 to $206,700 | $64,850 to $103,350 |
| 24% | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 | $394,600 to $501,050 | $197,300 to $250,500 |
| 35% | $250,525 to $626,350 | $501,050 to $751,600 | $250,500 to $626,350 |
| 37% | $626,350 or more | $751,600 or more | $626,350 or more |
Converting the entire balance of a Traditional IRA into a Roth is not required, a partial conversion may be part of your strategy if avoiding moving into a higher tax bracket.
While tax brackets are an immediate concern, your age and retirement timeline also play a big role in whether a conversion makes sense. Let’s explore that next.
2. Is it too late to benefit from a Roth conversion at my age?
Not necessarily. Many people in their 50s, 60s, or even 70s can still benefit from a Roth conversion. Here are a couple of age-related factors to consider for Roth conversions:
- Consider the potential for tax-advantaged growth. If you do not plan to withdraw funds immediately, you may benefit from compound growth, subject to market conditions. While time is a primary factor to consider, even a few years of compound growth may offset the calculated tax savings. Of course growth is never guaranteed, but a financial advisor can help you crunch the numbers for a good faith estimate based on stock market historical performance.
- Reduces future RMDs. Converting now of course means less in your Traditional IRA later, lowering your Required Minimum Distributions (RMDs) and the tax bill that comes with them. RMDs are essentially a cap on how long you can hold your funds in a Traditional account without paying taxes. The lower your balance of untaxed funds, the lower your RMD. RMDs do not apply to Roth accounts (while you’re living) because the taxes have already been paid.
Ultimately, age matters—but so does your timeline, tax bracket, and overall retirement strategy.
3. Should I convert gradually over several years instead of all at once?
You don’t have to convert your full Traditional retirement account balance over to Roth in a conversion. This means some people will elect to convert a portion or the entire balance over a few transactions, spreading out the tax hit. This strategy may assist in managing income thresholds related to Medicare or other benefits and could potentially help some individuals remain within an intended tax bracket.
Tax planning is a specialty of our Foundation Wealth Management. While tax planning can be complex, it’s very often worth an individual’s time. Keeping more of your hard earned money in your pocket is always our goal, and using tax law to your advantage is a smart way to do just that.
4. How does a Roth conversion impact my Medicare premiums?
A Roth conversion raises your taxable income for the year of the transaction. The funds are withdrawn out of the Traditional account, taxed as income, and the balance is deposited into a Roth account, completing the conversion.
The withdrawal raises your modified adjusted gross income (MAGI), which can trigger Income-Related Monthly Adjustment Amounts (IRMAA) for Medicare. The higher your income, the higher your Medicare Part B and Part D premium costs. Medicare premiums are calculated through the Social Security Administration, who is looking at your income from 2 years ago to calculate the present years IRMAA’s.
5. Can Roth conversions help reduce the tax burden on my heirs?
Yes, Roth conversions can help reduce the tax burden on your heirs. By converting to a Roth IRA, your beneficiaries can receive tax-free withdrawals, which can be especially beneficial if they’re in a higher tax bracket.
With a Traditional IRA, a Required Minimum Distribution (RMD) must be taken for the year of your passing, something heirs often overlook. To clarify, if the account owner hadn’t yet taken their RMD for the year, the heir must take it on their behalf. Roth IRAs, however, don’t have this immediate same-year of passing requirement. The timeframe an heir must abide by is they must withdraw all funds within 10 years under the IRS’s 10-year rule.
The Power of a Roth conversion in Retirement
Roth conversions can be a powerful tool in retirement planning, but like any strategy, they’re not one-size-fits-all. From managing your current tax bracket to reducing future RMDs and easing the burden on your heirs, there are plenty of reasons to consider a conversion.
That said, the decision comes with nuances, especially when factoring in Medicare premiums and timing. At Foundation Wealth Management, we help clients navigate these decisions with clarity and confidence so you can make the most of your retirement savings now and in the years to come.
About Foundation Wealth Management
Foundation Wealth Management is a CPA-led organization, that provides financial planning services and tax planning support; services and outcomes vary based on each client’s circumstances. Our team includes qualified professionals, such as CPAs and CFP®s, who are integral to our service offerings. Our team includes 3 Certified Financial Planners: Burt Hutchinson, CPA, CFP®, Paul LaViola, CFP®, and Stephen McDade, CFP®.
As Fee-Only planners, we are compensated directly by clients rather than through commissions from brokerage or insurance products, which we believe helps align our services with client goals.
Sources:
- chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.medicare.gov/publications/11469-income-and-drug-premiums.pdf
- https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
Disclosure Statement:
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax, or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. All investments are subject to risk, including the possible loss of principal.
The client scenarios presented in this blog are entirely fictional and created solely for illustrative purposes. Any similarities to actual persons, entities, or events are purely coincidental and unintentional.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, Past performance is not a guarantee of future results.
