A Case for Roth Conversions Before and After Retirement

Tax efficient strategy is one of the most overlooked, yet critical, parts of building and preserving wealth. One powerful but often misunderstood tool? Roth conversions.

Whether you're still working, preparing for retirement, or already retired, strategic Roth conversions can play a major role in optimizing your long-term financial picture — if done thoughtfully.

In this article, we'll explain what a Roth conversion is, why timing matters, and when it might make sense to convert, both before and after retirement.

What Is a Roth Conversion?

A Roth conversion is the process of moving money from a pre-tax retirement account, like a Traditional IRA or a 401(k), into a Roth IRA. When you convert:

• You pay income taxes on the amount you convert (since the money was pre-tax).

• Once inside the Roth, your money grows tax-free, and future qualified withdrawals are also tax-free.

Roth IRAs do not have Required Minimum Distributions (RMDs) during the account owner's lifetime, offering more flexibility in retirement income planning.

Why Consider a Roth Conversion?

Here are some of the main potential benefits:

• Tax-free growth: Earnings inside a Roth IRA grow tax-free, potentially for decades.

• No RMDs: Unlike Traditional IRAs, Roth IRAs don’t force withdrawals starting at age 73.

• More control over taxable income in retirement: Roth assets provide a source of income that doesn't add to your taxable income.

• Estate preservation planning advantages: Roth IRAs can be a powerful tool for passing on tax-free wealth to heirs (though inherited Roth IRAs must be distributed within 10 years).

When Might a Roth Conversion Make Sense?

Suitable timing for a Roth conversion often depends on your personal tax situation — now and in the future. Here are a few common windows where it may make sense:

1. Low-Income Years Before Retirement

If you experience a few lower-income years before claiming Social Security or pension income, it may create a "tax bracket gap." During this gap:

• Your current marginal tax rate may be lower than your projected future rate.

• Converting some traditional retirement assets to Roth allows you to lock in lower tax rates now.

Example: You're 60 years old, recently retired, and living off savings with minimal taxable income. Strategically converting $50,000–$100,000 per year to a Roth could potentially fill up lower tax brackets (like the 12% or 22% bracket) before other income sources begin.

2. Before Required Minimum Distributions (RMDs) Begin

Once RMDs start (at age 73 for many), your flexibility shrinks. RMDs can push you into higher tax brackets, increase Medicare premiums, and impact the taxation of Social Security benefits.

Strategic Roth conversions in your 60s — before RMDs are required — can help reduce future RMDs and smooth out your lifetime tax burden.

3. After Retirement — but Before Major Income Events

Even after retiring, there might be a few prime years for Roth conversions:

• Before you start Social Security benefits

• Before realizing large capital gains

• Before selling a business or property

By "filling" lower tax brackets methodically, you may improve your long-term after-tax wealth.

Considerations Before You Convert

While Roth conversions can be powerful, they aren't automatically the suitable choice for everyone.

Here’s what to think about carefully:

1. Current vs. Future Tax Rates

A basic rule of thumb: If you believe your future tax rate will be higher than your current tax rate, a Roth conversion may make sense.

But if you're already in a high tax bracket today and expect to drop to a lower one in retirement, it might be better to defer income instead.

2. Availability of Non-Portfolio Funds to Pay the Tax

Ideally, you should pay the tax bill for a Roth conversion using money from outside the account.

Why? Paying taxes from the retirement account itself shrinks the amount that can grow tax-free — undermining the main benefit of the conversion.

3. Five-Year Rule

Withdrawals of converted funds must satisfy a five-year holding period rule to avoid penalties, even if you're over age 59½.

Each Roth conversion has its own five-year clock, so planning matters.

4. Impact on Medicare Premiums and Tax Credits

Large conversions can inadvertently:

• Push you into higher Medicare premium brackets (based on Modified Adjusted Gross Income, or MAGI).

• Reduce eligibility for certain tax credits or deductions.

It’s important to consider not just the marginal income tax rate, but also the "hidden" effects on related programs.

Are Roth Conversions Suitable for You?

There’s no one-size-fits-all answer.

A Roth conversion strategy should be based on:

• Your current and projected tax brackets

• Your overall retirement income plan

• Your estate preservation planning goals

• Your liquidity for paying conversion taxes

And importantly: Roth conversions don't have to be all-or-nothing.

Partial conversions — spreading the conversion over several years — often provide a balance between tax efficiency and risk management.

Final Thoughts: It's About Smart, Strategic Planning

A well-timed Roth conversion can be one of the most tax-savvy moves in your financial plan. But it should be done carefully — ideally with guidance from a qualified advisor and your tax professional.

At Kingdom Guard Financial Group, we help clients evaluate whether Roth conversions fit their goals, model the potential tax impacts, and design a strategy that aligns with their broader wealth plan.

Because true financial freedom isn't just about how much you have — it's about how much you get to keep.

Important Disclosure: This article is for informational purposes only and is not intended as specific tax, legal, or investment advice. Please consult with your tax advisor and financial professional before making any decisions regarding Roth conversions.

These concepts were derived under current laws and regulations. Changes in the law or regulations may affect the information provided. Not affiliated with or endorsed by the Social Security Administration, the Centers for Medicare & Medicaid Services, or any governmental agency.