Lower Taxes in Retirement With a ROTH Conversion

Introducing a ROTH Conversion

Preparing for retirement involves a lot more than simply saving money. It's about making smart decisions that help you enjoy the retirement lifestyle you worked hard to build, without unnecessary financial stress. One strategy that some retirees and preretirees may consider, depending on their individual financial circumstances, is a Roth IRA conversion. It offers a way to better manage taxes in retirement, putting more control into your hands.

Many retirees discover that they may remain in a higher tax bracket than expected once they stop working. Relying on income from qualified retirement plans like IRAs or 401(k)s, minimum required distributions, and Social Security can create larger-than-expected tax bills. With the right approach, a ROTH conversion strategy can help minimize those surprises, offering tax-free income and more flexibility over your retirement years.

What Is a ROTH Conversion and How Does It Work?

A ROTH conversion involves moving money from a traditional IRA or 401(k) into a ROTH IRA. While you do pay taxes on the amount converted in the year it happens, the long-term reward can often make up for it. Once the money is in a ROTH IRA, it grows tax-free. There are no forced distributions while the original account owner is living. Plus, withdrawals in retirement can be tax-free too, as long as a few basic conditions are met.

Here’s a quick comparison to clarify some differences:

- Traditional IRAs often allow tax-deductible contributions. But come retirement, distributions are taxed as ordinary income.

- ROTH IRAs use after-tax contributions. That means no tax breaks up front, but any qualified withdrawals down the road will be tax-free.

If you believe that your taxes might go up in retirement or want to create a more predictable financial picture later in life, converting part of your Traditional IRA into a ROTH IRA may be worth exploring.

Key Benefits of a ROTH Conversion Strategy

When structured carefully, a ROTH conversion strategy can offer some significant benefits. Here

are three major ones to take into account:

1. Tax-free withdrawals: Once your money is in a ROTH IRA and you’ve met the basic conditions, every dollar you take out during retirement is tax-free.

2. No required minimum distributions (RMDs): Traditional IRAs require you to start withdrawing funds by age 73, whether you need the money or not. ROTH IRAs don’t have this requirement, which lets your funds keep growing untouched.

3. Reduced future tax liability: If you convert during a year when your income is lower, you can lock in a lower tax rate now instead of risking higher rates later.

4. Surviving spouses typically face tax bracket compression, as they move into a single filer status. Having assets in a ROTH IRA that will not be taxed can offer income flexibility and much needed tax relief.

Each of these benefits adds a layer of control over your financial future and helps cushion your retirement plan against tax law changes.

Common Misconceptions and Challenges

Understandably, many people get hung up on the tax hit at the time of conversion. No one likes the idea of paying more taxes right away. But it’s worth considering this as a short-term cost for long-term tax relief. If you’re nearing retirement and expect a drop in income, that could be the perfect time to complete a conversion while staying in a lower tax bracket.

Another common myth is that you must convert everything at once. In reality, partial conversions are very common—and often smarter. You can spread the taxable income over several years and avoid jumping into a higher tax bracket in any one of them. It’s also worth pointing out that not everyone will benefit the same way from this strategy. Your age, health, income plans, and even your legacy goals all affect if a ROTH conversion should be part of your game plan. One rule doesn’t fit all.

Why Partnering With a Financial Advisor Matters

Financial decision-making during retirement is like working with a puzzle that keeps changing shape. Between shifting tax brackets, market activity, and evolving personal needs, knowing when and how to convert can be confusing. That’s where partnering with a financial advisor really counts.

An advisor can help with the following:

- Compare your current and projected future tax picture

- Identify the best year or years for conversion

- Create a step-by-step plan for partial or phased conversions

- Keep you from accidentally bumping into a higher tax bracket

- Adjust if new tax laws or changes in your life occur

For example, a couple with a sizable Traditional IRA decided to work with a financial advisor to implement a phased ROTH conversion strategy over five years. Their plan was designed to manage the tax impact by spreading conversions across multiple tax years. While individual results may vary, the couple valued having a structured plan aligned with their long-term financial goals.

Achieving Financial Clarity and Security Through Strategic Planning

Preparing for retirement isn’t just about building a nest egg. It’s also about taking the steps that give you more control over how and when you use your savings. A ROTH conversion strategy gives you that kind of control, helping you sidestep tax surprises while opening up future planning opportunities.

By converting funds early in retirement—or even just before—you can take advantage of lower-income years to pay the conversion tax. This could lead to better financial flexibility when you’re no longer working. And if leaving money to your heirs is important, ROTH IRAs are one of the more tax-efficient ways to do it.

One strategy doesn’t work for all. But when used wisely, a ROTH conversion can be a key part of a well-rounded retirement plan. Whether you’re already retired or still a few years out, it’s worth seeing how this approach fits into your overall plan.

If you're looking to reduce future tax pressure and build more flexibility into your retirement plan, now may be the time to explore a smart tax strategy like a well-timed ROTH conversion strategy . If you want to align your income, taxes, and long-term goals so your money works harder for you– reach out to us today.

Investment advisory and financial planning services offered through Advisory Alpha, LLC, a SEC Registered Investment

Advisor. Insurance, Consulting and Education services offered through Vertex Capital Advisors. Vertex Capital Advisors is a

separate and unaffiliated entity from Advisory Alpha, LLC. CFP Board owns the certification marks CFP®, CERTIFIED

FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S.

Registration with the SEC or state does not constitute an endorsement of the firm by regulators, nor does it indicate that the

adviser has attained a particular level of skill or ability. This content is for informational purposes only and does not intend to

make an offer or solicitation for sale or purchase of any securities. Investing involves risk, including the potential loss of

principal. No investment strategy, such as asset allocation or diversification, can guarantee a profit or protect against loss in

periods of declining values. All investment strategies involve risk and have the potential for profit or loss. Changes in

investment strategies, contributions or withdrawals, and economic conditions may materially affect the performance of your

portfolio. There are no assurances that a portfolio will match or outperform any particular benchmark. Investors should

carefully consider the investment objectives, risks, fees and expenses before investing. Any financial services firms

referenced in this material do not provide tax or legal advice. Please consult with your tax or legal professional regarding

specific issues prior to making a tax or legal decision.