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When is too old for a Roth Conversion?

Darryl Rosen • Sep 01, 2022

Sometimes we view the decision from the wrong perspective. Here's what you should know!

Last week I watched my son compete in the Chicago Triathlon. While he was out on the course, I watched some older participants. There were some athletes in their early 70's competing.  

So, clearly, you may never be too old to begin your day in Lake Michigan, but are you too old to do a Roth conversion?

I will answer in a moment. But first…

There is no age when an individual is too old to convert and sometimes we view the decision from the wrong perspective. Older individuals may think that they do not have a long enough time to save, to make it worthwhile (because you are paying tax up front), but that’s overlooking the potential of a conversion as an estate planning strategy.

For older individuals who do not need their retirement savings soon or at all, especially if they plan to pass these funds on to beneficiaries – the Roth conversion is an effective estate planning vehicle, and even more so now after the elimination of the stretch IRA under the SECURE Act. 

Briefly, the big change from a few years ago made it less advantageous to have money in IRAs when you passed away.  

Under current law, most beneficiaries will be subject to the 10-year rule which can push the tax bill into a shorter time frame, leaving less for beneficiaries. 

A Roth conversion can eliminate the tax bill for beneficiaries, since the tax will be paid up front at conversion, possibly at lower tax rates available now.

There are things to consider:

Older individuals should also be advised that: A Roth conversion does increase ordinary income for the year of the conversion – potentially causing:
  1. The loss of valuable tax credits and deductions
  2. The taxation of Social Security, 
  3. Increased premiums for Medicare Part B and Part D premiums. 
However, that additional income is only for one year, and the trade off is future tax-free earnings and tax-free distributions from the Roth IRA.

It’s an idea that has merit at any age but make sure to understand all the ramifications before you check that box!

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