STOP! Why You Shouldn't Do a Roth Conversion

Ready For Retirement

Roth conversions are almost a buzzword today, with many people jumping into them like they’re a guaranteed fix for tax worries—much like rushing into surgery hoping it will solve all your problems. But just like surgery, Roth conversions require careful consideration, and they’re not always the right solution. Before deciding to convert, it’s essential to understand why not to do it.
Here are some key reasons to skip—or at least pause—on Roth conversions:
- Lower Future Tax Bracket: If you anticipate being in a lower tax bracket during retirement, it might not make sense to pay taxes upfront. For example, retiring and moving to a no-income-tax state like Texas can naturally reduce your tax obligations.
- No Significant RMD Issue: If your required minimum distributions (RMDs) won’t be large enough to push you into a higher tax bracket, the urgency to convert may not exist.
- Charitable Giving Plans: Those planning to donate through qualified charitable distributions (QCDs) after 70½ can leave funds in tax-deferred accounts, making those donations tax-free without needing to convert.
- Social Security Tax Torpedo: Conversions can increase your provisional income, causing more of your Social Security benefits to be taxed, effectively raising your tax rate.
- Medicare Premium Surcharges (IRMAA): Conversions can push your income above IRMAA thresholds, leading to higher Medicare premiums.
- Spending More or Retiring Earlier: Sometimes, simply increasing your spending or retiring sooner can reduce the need for conversions by naturally lowering tax-deferred account balances.
While Roth conversions can be a valuable tool, they’re not a one-size-fits-all solution. Thoughtful planning and understanding your unique financial situation are key to making the right choice.
Submit your request to join James:
On the Ready For Retirement podcast: Apply Here
On a Retirement Makeover episode: Apply Here
Timestamps:
0:00 - Roth conversions are like surgery
3:07 - Questions that prompted this episode
5:28 - Why not to do a Roth conversion
8:38 - RMDs prompt Roth conversions
10:50 - Spend more money, and retire earlier
13:27 - Rethinking what Roth conversions mean
15:12 - A financial example
18:06 - IRMA considerations
22:31 - Knowing enough to be dangerous
24:04 - More reasons to be cautious

Create Your Custom Strategy ⬇️

Get Started Here.

فصل ها

1. STOP! Why You Shouldn't Do a Roth Conversion (00:00:00)

2. Roth Conversion Strategies and Considerations (00:00:02)

3. Rethinking Roth Conversion Strategies (00:09:51)

4. Financial Planning for Optimal Tax Savings (00:14:14)

5. Navigating Roth Conversions and IRMA (00:18:57)

6. Financial Guidance Disclaimer (00:28:20)