Plan Roth conversions in early years of retirement if possible
Posted By RichC on August 27, 2025
For those of us of a particular age (or even younger) who are crunching their retirement income numbers should consider converting some of their Traditional IRA savings into Roth IRA savings. 
As a Barron’s Advisor practitioner, I’ve stressed planning in creating multiple income buckets in which to draw income from after retiring; in part this is a good way to keep taxable income as low as possible in your golden years. Roth IRAs are a great way to do this IF you plan early, but is also an option with Roth conversion.
The idea for buckets can be familiar to some who handle family finances. Most of us can visualize retirement buckets as Social Security, taxable 401K/IRA withdrawals (RMDs required after 73), already taxed savings/investment accounts and a pre-taxed Roth IRA. Setting these up well in advance is key so you can follow through by developing a strategy of withdrawals to keeping Uncle Sam’s portion to a minimum (a spreadsheet of future years helps to visualize).
But back to the Roth conversion … where I’ve enlisted ChatGPT’s help in looking for pitfalls:
There are a few important rules, tax implications, and age-related considerations to keep in mind before rolling over (technically called a Roth conversion) money from a Traditional IRA into a Roth IRA:
1. Taxes on the Conversion
- When you convert from a Traditional IRA (pre-tax money) to a Roth IRA, the converted amount is treated as ordinary income for that tax year.
- This means you’ll owe federal (and possibly state) income taxes on the value of cash, stocks, or bonds converted.
- Example: If you move $50,000 from a Traditional IRA to a Roth IRA, that $50,000 is added to your taxable income for the year.
2. No Age Limit on Conversions
- Unlike contributions, there’s no age restriction on Roth conversions.
- You can convert at 40, 60, or even 80 years old.
3. Required Minimum Distributions (RMDs)
- Once you reach age 73 (for most people under current law), Traditional IRAs require RMDs.
- You cannot convert an RMD into a Roth. You must take the RMD first (and pay taxes), then you can convert additional amounts if you wish.
4. The 5-Year Rule
- Each conversion has its own 5-year clock before converted funds can be withdrawn penalty-free (applies to earnings and converted amounts if you’re under 59½).
- If you’re under 59½ and withdraw converted funds within five years, you could face a 10% early withdrawal penalty, even though you already paid taxes on the conversion.
- If you’re over 59½, the penalty doesn’t apply, but the 5-year rule still applies for earnings.
5. Effect on Taxes and Brackets
- A conversion could push you into a higher tax bracket or affect other items tied to adjusted gross income, such as:
- Medicare premiums (IRMAA surcharges if you’re 65+)
- Taxation of Social Security benefits
- Eligibility for certain deductions or credits
6. Partial Conversions Are Allowed
- You don’t need to convert your entire Traditional IRA at once.
- Many people do partial conversions over several years to spread out the tax burden and avoid being pushed into higher brackets.
✅ In summary:
- No age restriction to convert.
- Conversions are taxable as income.
- RMDs (if age 73+) must be taken first.
- The 5-year rule applies, especially important if you’re under 59½.
- Be mindful of tax brackets and Medicare/benefit impacts.
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