My wife and I are 70 years old. We paid off everything, including the house. Between my $29,000 pension and Social Security, we get $99,000 gross a year in income, which is more than enough. Our current savings in our brokerage account are $700,000. Our individual retirement account (IRA) totals $1.4 million. Our Roth is worth $400,000. We both expect to live to be 90 years old. At our age, is it too late to have a Roth conversation?
-Anonymously
The short answer is no. There is no age limit on your ability to convert to a Roth.
There is also no income requirement to convert to a Roth. As long as you have a balance in an IRA, you can theoretically keep converting to a Roth for as long as you like.
The bigger question is this: Does converting to a Roth further your goals for your wealth legacy?
This should be the starting point before embarking on any Roth conversion strategy, regardless of your age. But it becomes especially important when you’re considering Roth conversions as you approach and begin taking required minimum withdrawals (RMDs).
Most articles and conversations about converting to a Roth will focus on the years between retirement and taking RMDs. Those years can provide a fantastic opportunity to convert IRA dollars into a Roth. But they are not your only chance. Answer this question: What do I want to happen to my assets when I die? The answer is in the details. Here’s how to think through this strategy.
A financial advisor can help you understand how to manage the tax implications of a Roth conversion.
An argument against a Roth conversion
On one end of the spectrum, let’s assume all your wealth is given to your favorite charity when you pass away. If a qualified charity receives your IRA when you pass away, no taxes will be due and you should strongly consider converting any of your IRA balance into a Roth during your lifetime.
In that case, converting to a Roth would choose to pay taxes that you would otherwise never have to pay.
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A plea for a Roth conversion
The other extreme would be if your goal is to bequeath all of your wealth to your children, grandchildren, or other loved ones — and make sure they never have to worry about paying taxes on those dollars.
In this case, an argument could be made for trying to convert every last dollar of your IRA balance into a Roth before you die. That way, your beneficiaries receive a huge tax-free pie, and the IRS doesn’t get to share a single piece. This may not provide the most tax savings, but it would be the best way to ensure that your beneficiaries don’t have to worry about taxes.
The middle ground on Roth conversions
Most people will end up somewhere in between, where converting to a Roth can make a lot of sense, but only up to a point.
Roth conversions make the most sense if you can choose to pay the income tax on your IRA balance and move it to a Roth in a relatively low income tax year. “Relative” is an important word here because it will be unique to each taxpayer’s situation.
The question to ask yourself here is, am I worried that at some point in the future I will end up in a higher tax bracket than I am now?
Keep in mind that even if Congress does nothing about taxes for the next three years, tax rates will rise in 2026.
Roth conversion factors to understand
If you decide that a Roth conversion will help you achieve your wealth goals, there are several factors to consider when deciding how much to convert in any given year. They are:
How much income tax will be due
In general, the more we can spread out taxable income, the lower the federal income tax we will pay. That is an oversimplification. But it provides a starting point to think about how to put together a Roth conversion strategy.
In the example given in this question, converting the entire $1.4 million from an IRA to a Roth in one year would result in more taxes paid than spreading those conversions over the taxpayers’ remaining life expectancy.
Other tax implications
The federal income tax gets all the attention when there are Roth conversions. But your marginal tax rate (the amount of tax you pay on the next dollar of income) isn’t the only consideration.
In this example, 85% of the taxpayer’s Social Security (the highest amount possible) is already included in taxable income. But for taxpayers with lower taxable incomes, Roth conversions have the potential to change how much Social Security is taxable.
Increasing taxable income can also change a taxpayer’s eligibility for tax credits and deductions. For taxpayers who have not yet begun claiming Medicare, the premium tax credit can be particularly impactful.
Medicare premiums
For taxpayers approaching age 65 or already taking Medicare, it’s critical to remember that the amount you pay for your Medicare is affected by your taxable income (particularly through adjusted adjusted gross income) and the may increase the actual cost of performing a Roth conversion.
This can be particularly dangerous because each income group is treated like a cliff for Medicare premiums. So once you’re one dollar above the threshold, your premiums take the full leap to the next level. In other words, in for a penny, in for a pound.
What if the tax rules change in the future?
I am often asked if I am concerned that Congress will change de Roth rules in the future and having large Roth balances could prove to be a liability.
My answer is always the same: the tax code is written in pencil and Congress can change anything it wants. We must do our best with the information we have and the laws that are currently in effect.
What to do now
My crystal ball is still broken, so anything I say about future rule changes would be just a guess. What I do know is that holding an IRA is like having a variable rate mortgage with the IRS, where they have the option to change the interest rate to whatever they want, whenever they want. An opportunity to take the IRS out of the picture by converting IRA dollars to Roth dollars is always worth considering.
Steven Jarvis, CPA, is a financial planning columnist at SmartAsset, answering questions from readers on personal finance and tax topics. Do you have a question you would like answered? Send an email to [email protected] and your question may be answered in a future column.
Please note that Steven is not a participant in the SmartAdvisor Match platform and has received compensation for this article. The author’s taxpayer resources can be found at pensionetaxpodcast.com. Resources for the author’s financial advisors are available at pensionetaxservices.com.
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The post Ask an Advisor: We’re 70 years old, have a $99,000 retirement income, a $1.4 million IRA, and other investments. Is it too late to switch to a Roth? appeared first on SmartAsset Blog.
