My husband and I are 70 years old. We paid for everything including the house. Between the $29,000 pension and Social Security, we’re grossing $99,000 a year, which is more than enough. Our current savings in our brokerage account is $700,000. Our Individual Retirement Account (IRA) total is $1.4 million. Our Roth value is $400,000. We both expect to live to be 90. Is it too late to have a Roth discussion at our age?
The short answer is no. There is no age limit on your skills. Convert to Roth.
There is no earned income requirement to convert to a Roth. As long as you have a balance in the IRA, in theory, you can convert to a Roth as often as you want.
The big question is this: Will converting to a Roth advance your goals for wealth inheritance?
Regardless of your age, this should be the starting point before starting a Roth conversion strategy. But when you consider Roth conversions, it becomes more important as you get closer and closer to taking them. Required Minimum Distributions (RMDs).
Most articles and conversations on converting to a Roth focus on the years between retirement and RMDs. Those years may provide a good opportunity to convert IRA dollars into a Roth. But they are not your only chance. Answer this question: What do I want my fortune to be when I die? The answer is in the details. Here’s how to think through this strategy.
A Financial advisor A Roth conversion can help you understand how to manage the tax consequences.
Debate on Roth conversion
At one extreme, let’s assume that when you die, all of your wealth is donated to your favorite charity. If a qualified charity receives your IRA when you pass, there will be no tax to pay, and you should strongly consider not converting any of your IRA balance to a Roth during your lifetime.
In that case, converting to a Roth is choosing to pay taxes that you might never pay otherwise.
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Roth conversion issue
If that’s your goal, the opposite would be extreme. Leave all your wealth to your childrengrandchildren or other loved ones – and to make sure they never have to worry about paying taxes on those dollars.
In this case, an argument can be made for trying to convert every last dollar of your IRA balance to a Roth before you die. That way, your beneficiaries receive a large tax-free pie, and the IRS can’t share a slice. This may not result in the greatest tax savings, but it is the best way to keep your users from worrying about taxes.
The middle ground on Roth conversions
Most people are going to reach a point in the middle where converting to Roth makes a lot of sense, but only up to a point.
Roth conversions make the most sense when you can choose Pay income tax on your IRA account and roll it over to a Roth in a relatively low-income tax year. “Relative” is an important word here, as each taxpayer’s situation is unique.
Here’s the question you need to ask yourself: Am I worried that at some point in the future, I might be in a higher tax bracket than I am now?
Keep in mind that even if Congress doesn’t pass any taxes for the next three years, tax rates could increase in 2026.
To understand the reasons for the Roth conversion
While a Roth conversion can help you achieve wealth goals if you decide to, there are many factors to consider when deciding how much you should convert in a year. they are:
How much income tax is payable?
In general, we can expand more Taxable incomeWe pay a lower federal income tax. This is an oversimplification. But it does provide a starting point for thinking about how to put together a Roth conversion strategy.
In the example in this question, generally, converting the entire $1.4 million from an IRA to a Roth in one year would result in more taxes than spreading those conversions over the rest of the taxpayer’s lifetime.
Other tax implications
Federal income tax gets all the attention when it comes to 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 Social security (Maximum amount possible) already included in tax revenue. But for low-income taxpayers, Roth conversions have the potential to change how much Social Security is taxed.
An increase in taxable income can change a taxpayer’s eligibility for tax credits and deductions. For taxpayers who have not started claiming Medicare, the premium tax credit can be especially beneficial.
For taxpayers aged 65 or older MedicareIt’s important to remember that the amount you pay for Medicare depends on your taxable income (especially adjusted gross income) and the true cost of a Roth conversion.
This can be especially dangerous because each Medicare premium income bracket is seen as a cliff. So once you’re a dollar over the threshold, your premiums take a whole jump to the next level. In other words, for a penny, in a pound.
What if tax laws change in the future?
I often worry whether Congress will change the Roth rules and large Roth balances could become a liability.
My answer is always the same: the tax code is written in pencil, and Congress can change whatever it wants. We must do the best we can with the information we have and the laws currently in place.
What to do next
My crystal ball is still broken, so anything I say about future rule changes will be speculation. What I do know is that having an IRA is like having a variable-rate loan with the IRS, with the ability to change the interest rate to whatever you want whenever you want. The 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 for SmartAsset and answers reader questions on personal finance and tax topics. Have a question you want answered? Email [email protected] and your question may be answered in a future column.
Please note that Steven is not a participant in the SmartAdvisor Match forum and he is being compensated for this article. Sources from the author’s taxpayers are available at retirementtaxpodcast.com. Financial advisory resources are available from the author retirementtaxservices.com.
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