Are Roth IRA's Worth It?
Maybe it’s because of my profession, but I receive a lot of emails and Instagram posts and such regarding the benefits of a Roth conversion. They seem to be everywhere. It’s so prolific that I’m starting to see content that is telling me the opposite – just to cut through the noise.
Here’s what most of those ads, articles, and advisors don’t tell you: Roth conversions are not a universal solution. In fact, for many retirees (and near-retirees), it might be the wrong move entirely or the right move for the wrong reasons. It all depends on your situation and your goals.
What Is a Roth Conversion?
A Roth conversion means taking money from a traditional tax-deferred IRA or 401(k) and moving it into a designated Roth account, where future growth and withdrawals are tax-free.
The catch? You must pay income taxes now on any amount you convert. That’s why timing, tax bracket, and long-term projections matter more than most people think.
The Mistake Most People Make
The biggest mistake we see people making in Roth conversions is ignoring their tax bracket. If you’re not careful, you could spend an extra 8-10% in taxes. This can turn around and provide you with less income in retirement. Worse, popular online calculators often oversell the benefits, relying on cookie-cutter assumptions that don’t match your real-life finances.
When Roth Conversions Might Make Sense
So, when does it work?
The strongest Roth conversion strategy isn't about paying less taxes during your lifetime. It’s a nice strategy, but not the best use of your finances.
Your best use of a Roth IRA is ensuring your heirs receive the maximum benefit from your nest egg.
Consider this: under current law, adult children who inherit a traditional IRA must empty it within 10 years, often during their highest earning years. That means potentially massive tax consequences for them, not you.
A well-timed Roth conversion today, especially if you don’t plan to use the money during your lifetime, could save your children hundreds of thousands of dollars in future taxes.
In this case, the Roth conversion becomes a legacy strategy, not a retirement income tool.
Three Numbers You Must Know Before Converting
Regardless of your reason, if you’re even thinking about a Roth conversion, you must know:
- Your Current Tax Bracket
Are you close to the top of your bracket? Converting even a small amount could tip you into a higher rate, eliminating the very benefits you're chasing.
- Your Future Tax Bracket
Will your taxes go down in retirement? If so, paying taxes now makes less sense. If you expect higher income or tax rates later, it may be worth it.
- Your Beneficiaries’ Tax Brackets
Will your children or heirs face higher taxes than you do now? A Roth could protect them from inheriting a ticking tax bomb.
In our experience, Roth conversions work best when spread over several years in careful increments. If you’re trying to convert a large balance all at once, you may just be volunteering for a bigger tax bill than necessary.
The Bottom Line
Roth conversions are powerful. Before you follow a social media ad, an influencer’s promise, or even a well-meaning advisor’s one-size-fits-all pitch, you need to do your homework.
If you're not sure, don't guess. Find a trusted financial professional who can run the numbers, your numbers, and walk you through a plan designed for real life. Because when it comes to your retirement, the right strategy is always personal.
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