Roth IRA Conversions Near Retirement: A Strategic Tax Move Many Overlook
- Marc Lowe
- Feb 18
- 5 min read
Updated: Mar 2
It was in a live workshop when I met a woman who asked about Roth IRAs. She was in her late sixties and had worked at a pharmaceutical company in Groton, CT.
She complained about how she was in the 24% tax bracket even though she is currently retired. The problem was that she was not even RMD (Required Minimum Distribution) Age yet and ALL of her money was in a Traditional IRA.
Even though she worked with a "financial planner" that she was happy with, she had been put in an inflexible tax position.
When I asked why she hadn't put any money into a Roth IRA, her response was "I am too old for that". We laughed as I know not to ask a woman's age but since she mentioned she had started to take social security at FRA last year I knew she was in her late sixties.
This ultimately started a lovely conversation around Roth IRAs and how they can be used for folks in or approaching retirement.
In 1971, Delaware senator William Roth began a long career focused on tax reform and improving financial outcomes for American households. His vision eventually led to the creation of the Roth IRA through the Taxpayer Relief Act of 1997 — a retirement savings vehicle designed to offer tax-free growth and withdrawals. More than two decades later, the Roth IRA remains one of the most powerful planning tools available.
When most people hear “Roth IRA,” they think of younger investors — someone early in their career, contributing small amounts while in lower tax brackets and letting decades of tax-free growth do the work.
But here’s what often gets missed:
For investors approaching retirement — or already retired — the Roth IRA can become one of the most powerful strategic tools available.
Not because of new contributions.
Because of conversions.
And when executed thoughtfully, a Roth conversion can reshape your tax strategy, improve retirement flexibility, and simplify long-term planning in ways many investors don’t fully understand.
Allow me to explain why.
Why Roth IRAs Matter More as Retirement Gets Closer
A Roth IRA offers three core advantages that become increasingly valuable later in life:
Tax-free growth on investments
Tax-free qualified withdrawals
No required minimum distributions (RMDs)
That last point is often the game-changer.
Traditional retirement accounts like IRAs and 401(k)s require withdrawals starting at age 73. These required minimum distributions are treated as taxable income — regardless of whether you actually need the money.
And that creates ripple effects.
Higher taxable income can:
Push you into higher tax brackets
Increase taxation on Social Security benefits
Raise Medicare premiums (IRMAA surcharges)
Reduce flexibility in managing your overall tax strategy
Instead of deciding when to take income, the IRS effectively decides for you.
A Roth IRA removes that constraint.
The Hidden Challenge of Required Minimum Distributions
Many investors assume RMDs are simply part of retirement — unavoidable and harmless.
But large traditional retirement balances can create unexpected tax pressure later in life.
Because RMDs:
Increase taxable income each year
Are calculated based on account value (meaning strong market growth can increase future distributions)
May force withdrawals during unfavorable market conditions
This last point is important.
When you’re required to take distributions, you may need to sell investments even when markets are down — disrupting long-term investment strategy.
By contrast, Roth IRAs allow assets to remain invested without forced withdrawals, offering more flexibility for growth-focused or longer-term allocations.
How Roth Conversions Work
A Roth conversion involves moving assets from a traditional IRA or 401(k) into a Roth IRA.
The amount converted is treated as taxable income in the year of conversion.
That’s the trade-off:
You pay taxes now in exchange for future tax-free growth and withdrawals.
Done strategically, this allows you to shift assets from a future taxable environment into a tax-free one — potentially reducing lifetime taxes.
Why Timing and Execution Matter
The biggest mistake investors make with Roth conversions isn’t deciding whether to do one — it’s how they do it.
Converting too much in a single year can:
Push income into higher tax brackets
Increase taxation on Social Security benefits
Trigger higher Medicare premiums
Instead, many investors benefit from a multi-year conversion strategy.
This often means:
Converting smaller amounts annually
Targeting specific tax brackets
Coordinating with income gaps (such as early retirement years before Social Security or pensions begin)
Think of it less as a single event and more as a carefully designed process.
How to Pay the Taxes on a Conversion
Another overlooked factor is how the tax bill gets paid.
Whenever possible, paying conversion taxes using assets outside the retirement account — such as funds from a brokerage account — can improve long-term results.
Here’s why:
The full converted amount remains invested inside the Roth IRA.
Future growth compounds tax-free.
You avoid shrinking the retirement account balance used for conversion.
🚨If you’re under age 59½, using retirement funds themselves to pay the tax bill may also trigger penalties — making external funding even more important.
The other options are to:
1) Withhold the Taxes from the conversion to pay the IRS. Doing this before 59 1/2 can trigger penalties.
2) If you are still working, you can ask your employer to withhold more taxes from your paycheck to account for the expected tax on the conversion. Self-employed folks can increase their quarterly tax payments.
Estate Planning Benefits After the SECURE Act
The SECURE Act significantly changed how inherited retirement accounts work.
Previously, many beneficiaries could stretch distributions over their lifetime. Now, most non-spouse heirs must withdraw inherited IRA assets within 10 years.
For traditional IRAs, this means heirs may face large taxable distributions.
Roth IRAs, however:
Still require distribution within 10 years
But withdrawals are generally tax-free
This can simplify estate planning and potentially reduce tax burdens for future generations.
The Bottom Line: Roth IRAs Aren’t Just for Young Investors
Even if you didn’t prioritize Roth contributions earlier in life, it’s not too late.
In fact, the years around your retirement date are often when Roth strategies become most impactful.
A well-designed conversion strategy can:
Reduce future tax exposure
Improve retirement income flexibility
Minimize RMD pressures
Enhance legacy planning
But success depends on thoughtful planning — coordinating taxes, timing, and long-term goals.
Because a Roth conversion isn’t just about moving money.
It’s about intentionally reshaping how your retirement income works for you.
About the Author
Marc Lowe, CFP® is a fee-only fiduciary advisor based in Waterford, CT, helping pre-retirees & small business owners make smarter financial decisions.
The information presented in this article is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through In The Money Retirement, an investment adviser registered with the state of Connecticut. The information linked to on third-party sites is being provided strictly as a courtesy and convenience. We make no representation as to the completeness or accuracy of information provided at these websites. When you access these websites, you are leaving our website and assume any and all responsibility and risk for use of the web sites you are visiting.The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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