Roth conversions: are you overpaying your future tax bill?
Your traditional IRA has a silent partner: the IRS. A little planning now can lower the bill later.
Every dollar in a traditional IRA or 401(k) is really two dollars: yours, and the IRS's. You just haven't settled up yet. That bill comes due when you withdraw, and, whether you want the money or not, when required minimum distributions kick in.
Why the bill can be bigger than you expect
Many people retire, delay withdrawals, and watch their pre-tax balance keep growing. Then RMDs arrive and push them into a higher bracket than they were in while working, sometimes dragging more of their Social Security into taxation too.
What a Roth conversion does
A conversion moves money from pre-tax to Roth and pays the tax now, at a rate you can see, instead of later at a rate you can't predict. In the lower-income years between retiring and starting RMDs, there's often room to convert at a favorable bracket.
It isn't magic, and it isn't for everyone. Convert too much and you create the very bracket problem you're trying to avoid. It's about timing and amounts.
It's one piece of the plan
Tax isn't a separate service we sell. It's built into how we design your income. Conversions, withdrawal order, and account location all get coordinated so the plan is tax-aware by design, not bolted on in April.
For educational purposes only; not individualized investment, tax, or legal advice. Guarantees are backed by the issuing insurer. Consult a qualified professional about your specific situation.
Zach Chiara, CFP®
Zach is a retirement planning specialist who helps people within ten years of retirement bring income, investments, taxes, and wealth protection into one connected plan.
More thoughts on money and planning.
If you enjoyed this piece, here are a few more articles you might find helpful.
Let’s have a quick chat about your retirement plan.
A relaxed, no-pressure conversation to see where you stand and whether working together makes sense.
