If you have a large retirement account balance (e.g. IRA, 401k, 403b) a Roth conversion may make a lot of sense in retirement. For some people, a Roth conversion can drastically reduce income taxes over their lifetime (and their children’s lifetimes).

Many people, upon retirement, suddenly find themselves in a low tax bracket. For example, assume you retire at age 65. You no longer have any earned income. Additionally, you have over five years before you’re required to begin withdrawing money from your pre-tax retirement accounts like IRAs, 401ks, and 403bs, etc…

This creates a great planning opportunity!

For many of my retired clients, it’s advantageous to begin taking distributions from their pre-tax retirement accounts immediately upon retirement. Why? Because around age 70, the IRS mandates that you begin withdrawing money from your pre-tax retirement accounts anyway. These are called required minimum distributions (RMDs). These withdrawals get taxed at ordinary income tax rates.

The larger the balance in those accounts, the larger the distributions and the higher tax rate you’ll pay. Taking distributions immediately allows you to take advantage of the low tax bracket in those early retirement years and begin whittling down the pre-tax retirement account balances so you don’t get kicked into as high of a tax bracket down the road.

This strategy allows you to exert control on the tax bracket in which you reside because you determine how much to withdraw thereby controlling your income. Ultimately, this strategy may preserve more wealth for you, your family, and charity.

Roth Conversion?

If you and your advisor have determined that it makes sense to accelerate some distributions early in retirement (and you’ve determined the appropriate amount), you then have the choice of distributing to yourself outright OR converting those distributions to a Roth IRA.

The benefit of the Roth is that those monies will never be taxed as income again! So now you can exert a lot of control on your taxes over your lifetime by utilizing the three main buckets of after-tax accounts (interest, dividends and capital gains are taxable when incurred), pre-tax accounts (withdrawals are taxable), and tax-free (Roth) accounts.

In other words, you received a deduction for the contributions at a relatively high tax rate when you were working, you take a distribution at a relatively low tax rate in retirement and convert those monies to a Roth where it becomes free of income taxes for the rest of your life and your heirs’ lives!

If it turns out this strategy is appropriate for you, you may consider using the Roth IRA to hold high growth assets (e.g. emerging market stocks). After all, imagine the power of tax-free growth of high-growth assets for 60-80 years (i.e. the remainder of your and your children’s lifetimes)!

Let me know if you’d like help maximizing your family’s after-tax wealth and income.

Kindest Regards,

Ken Melotte, CFP®

P.S. Roth IRAs are still subject to estate tax, if applicable.

P.P.S. Roth conversions are not only for retirees. They make sense for others as well, but I’m just focusing on this particular situation today.


A detailed analysis should be performed to determine whether the strategy is appropriate for your unique situation.

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