From 24/7 Wall St. · Vilma Rios · · 1m 30s
Roth Conversions in Low-Income Years
Retirees can pay lower taxes by converting IRA funds before required withdrawals start.
In brief
Retirees can pay lower taxes by converting IRA funds before required withdrawals start. Retirees who convert traditional IRA to Roth IRA during low-income years before age 73 can pay lower taxes and avoid future required distributions. Originally reported by 24/7 Wall St..
The Retiree's Tax Window
Retirees face a narrow window between last paycheck and first required withdrawal where tax rates drop significantly.
Tax Bracket Advantage
Converting during low-income years fills cheaper tax brackets before higher rates apply.
RMD Timeline
Required minimum distributions begin at age 73, closing the tax window for conversions.
Medicare Surcharges
High-income retirees face higher Medicare premiums after conversions due to IRMAA thresholds.
Social Security Taxation
Converted income increases taxable portion of Social Security benefits for retirees.
Two Five-Year Clocks
Each conversion starts a new five-year clock for tax-free withdrawals and a separate clock for Roth contributions.
No Recharacterization
Conversions made after 2017 cannot be switched back to traditional IRAs once completed.
Who Benefits
Retirees with large traditional IRAs and cash outside the IRA can fill cheaper tax brackets without triggering higher rates.
Who Should Caution
Retirees close to IRMAA thresholds, those already collecting Social Security, and those expecting lower tax rates later should slow conversions.
Professional Advice
Retirees should run numbers with a qualified tax professional before converting to avoid costly surprises.
The main idea
Retirees who convert traditional IRA to Roth IRA during low-income years before age 73 can pay lower taxes and avoid future required distributions.
