At Rose Street Advisors, we help retirees evaluate and execute Roth conversions every year. For many clients, a Roth conversion can be an important part of a thoughtful retirement and tax strategy. But we've also learned something important:
Just because you can do a Roth conversion doesn't mean you should.
The right question isn't how much you can convert. It's whether converting makes sense for your specific situation. Here are five situations where retirees should think twice.
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1. You Don't Have Heirs Who Will Benefit
One of the biggest potential benefits of a Roth is leaving tax-free assets to your heirs.
But what if you don't plan to leave significant assets to children or other beneficiaries? If your goal is to spend your retirement assets during your lifetime, paying taxes today to create a tax-free inheritance may provide little benefit.
There may still be reasons to convert, such as reducing future RMDs or managing future taxable income. But the conversion should have a clear purpose.
If nobody is going to benefit from the Roth later, ask why you're paying the tax today.
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2. You're Planning to Give the Money to Charity
Retirement accounts can be valuable charitable assets.
If you plan to leave a significant portion of your IRA to charity, converting those dollars to a Roth first may mean paying taxes on money that could potentially pass directly to a qualified charity without creating the same income-tax burden. The better question may not be, "How much should I convert?"
It may be, "Which assets should go to charity and which should go to my family?"
Sometimes the best Roth conversion is the one you don't make.
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3. You Don't Have Cash to Pay the Taxes
A Roth conversion creates taxable income. If you convert $200,000 and owe $50,000 in federal and state taxes, where will that $50,000 come from? Ideally, you pay the tax with money outside the IRA. Otherwise, you may have to use part of the retirement account to pay the tax, reducing the amount that actually makes it into the Roth.
Before converting, make sure you have a plan for the tax bill.
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4. The Conversion Will Increase Your Medicare Premiums
For retirees on Medicare, don't forget about IRMAA, the Income-Related Monthly Adjustment Amount. A Roth conversion can increase your income enough to trigger higher Medicare Part B and Part D premiums. And there's a two-year lookback.
For example, a conversion in 2026 can affect your Medicare premiums in 2028. But here's the important point: paying additional IRMAA isn't necessarily a mistake.
If a larger Roth conversion meaningfully reduces future RMDs, creates more tax-free assets for heirs, or provides other long-term benefits, paying higher Medicare premiums for a year or two may be a reasonable tradeoff. The mistake is ignoring IRMAA when doing the math.
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5. You May Be in a Lower Tax Bracket Later
A Roth conversion means paying taxes today in exchange for potentially avoiding taxes later. So what will your tax bracket look like in the future? If your income is unusually high today but is expected to fall in future years, a large conversion may not make sense right now.
This is why Roth conversion planning should often be viewed as a multiyear strategy, not a one-time decision. You may convert some this year, more next year, and less the year after.
The Bigger Question
The question isn't: "Should I do a Roth conversion?" It's:
"Does paying the tax today create enough value to justify the cost?"
That requires looking at taxes, RMDs, Medicare premiums, charitable intentions, estate plans, and how you actually intend to use your money.
At Rose Street Advisors, we use state-of-the-art planning technology to model these decisions and help clients see the potential tax impact of different Roth conversion strategies before making a decision.
Sometimes the answer is to convert. Sometimes the answer is to wait. And sometimes the answer is don't convert at all.
Don't convert just because you can. Convert because it serves a purpose.
Good retirement planning isn't about finding the latest strategy and checking a box.
It's about making sure every financial decision has a purpose.
If you're wondering whether a Roth conversion makes sense for your retirement plan, contact Rose Street Advisors.We'd be happy to help you evaluate the numbers, the tradeoffs, and the potential long-term impact of a conversion.
Contact us to see whether a Roth conversion is right for you.