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Roth IRAs and Roth conversions have become increasingly popular in recent years, especially among those nearing retirement. While converting pre-tax accounts like 401(k)s and traditional IRAs to Roth can offer major benefits—such as tax-free withdrawals and no Required Minimum Distributions (RMDs)—there are important tax planning pitfalls to consider.
Blindly converting 100% of your pre-tax retirement accounts could leave you with an unnecessarily large tax bill. In this guide, we explore why complete conversion isn't always the best strategy and how to balance your retirement portfolio for tax efficiency.
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One compelling reason to keep money in pre-tax retirement accounts is to take advantage of tax deductions in retirement.
Whether you take the standard deduction or itemize, retirees with lower incomes may be able to withdraw money from pre-tax accounts without paying any federal income taxes. This is especially true if you don’t have other major sources of taxable income like wages or investment earnings.
Let’s look at a quick example: Imagine a retiree couple with $2,000 per month in Social Security benefits ($48,000 annually) and no other income. If they have no pre-tax accounts left and take withdrawals only from Roth IRAs, they end up wasting much of their standard deduction ($31,600 for a married couple in 2025, including an age-related increase).
But if they keep a modest balance in a traditional IRA, they could withdraw up to $23,000 tax-free, thanks to the standard deduction. Even with some of their Social Security income becoming taxable (due to provisional income thresholds), their total tax bill would remain $0.
Another overlooked benefit of keeping pre-tax assets is the ability to make Qualified Charitable Distributions (QCDs). If you're 70½ or older, you can donate directly from a traditional IRA to a qualified charity—up to $108,000 per year per tax filer in 2025.
Why does this matter? Because QCDs are not taxable to you or the charity. If you donate from a Roth, you’re effectively giving away money you’ve already paid taxes on. But donating from a pre-tax IRA allows you to make tax-free donations without needing to itemize your deductions.
It’s crucial to ensure the funds go directly from your IRA to the charity—usually via a check payable to the organization. If you withdraw the funds first and then donate them, it won’t count as a QCD and will be taxed as a normal distribution.
Many people convert to Roth accounts for legacy planning, thinking tax-free inheritance is the best gift they can leave behind. But this assumes your heirs will face the same or higher tax brackets than you do today.
In reality, if you're in the 24% bracket and your children or heirs are in the 12% bracket when they inherit, you could be paying more in taxes now than they would later. For instance, converting $100,000 today at a 24% rate leaves your heirs with $76,000. But leaving it in a traditional IRA and having your heirs withdraw at 12% gives them $88,000—significantly more.
Legacy planning should involve estimating not just future asset values, but also likely tax brackets of beneficiaries. It’s one of the most nuanced areas of retirement planning.
A common motivation behind Roth conversions is the fear of rising future tax rates. While the national deficit suggests tax rates may increase eventually, that doesn’t mean your personal tax bracket will rise.
If you're in the 24% bracket today and plan to withdraw only $30,000–$40,000 per year in retirement, your future tax rate may be much lower—possibly just 12%. In that case, converting large amounts now could trigger unnecessary tax payments.
Effective tax planning is all about timing and projections. Think ahead to what your actual retirement income will look like, not just federal tax policy headlines.
Many people rush Roth conversions to avoid Required Minimum Distributions, which start at age 73 and are often cited as a tax trap.
While RMDs can be a problem for retirees with very large pre-tax account balances (e.g., $2 million+), for most people, they’re manageable. The first RMD is typically about 3.5–4% of your total pre-tax balance. That’s $20,000–$30,000 annually for someone with $500,000–$750,000 saved—an amount unlikely to push you into a significantly higher tax bracket.
Rather than fearing RMDs blindly, use tax planning software or a financial advisor to model your likely situation. It may turn out that your RMDs are not as threatening to your retirement taxes as you think.
One of the best tax planning strategies in retirement is tax diversification—having money in both pre-tax and Roth accounts.
This allows you to control your taxable income year by year, depending on your spending needs. For instance, in a high-spending year, you might tap into your Roth account to avoid a higher tax bracket. In a low-spending year, you could withdraw from your pre-tax IRA at little or no tax cost.
Flexibility is key in retirement planning. Rigid strategies like converting 100% to Roth can leave you without options when circumstances change.
Although unlikely in the short term, there is always the possibility that Congress could change Roth rules in the future. Speculation includes potential taxes on Roth earnings or means-tested Roth withdrawal limits.
While current tax laws protect existing Roth balances, future conversions might be subject to different rules. In that case, having a mix of pre-tax and Roth assets could protect you from legislative risk.
The bottom line? Avoid putting all your eggs in one tax basket.
Roth conversions can absolutely be a powerful tool for retirement tax planning. But as with all things financial, moderation is key.
Over-converting can lead to high upfront taxes, wasted deductions, and missed charitable opportunities. Instead of converting 100% of your pre-tax retirement accounts, aim for a balanced tax strategy that gives you both flexibility and long-term efficiency.
Understanding your ideal Roth conversion strategy requires projections, planning, and sometimes professional guidance. If you're considering how Roth fits into your retirement plan, a qualified advisor can help you assess your specific situation.
Tax laws change, markets fluctuate, and retirement spending needs evolve. Smart planning now can save you tens of thousands of dollars in taxes later.
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