Roth conversions can be a valuable retirement planning tool.
But that does not mean bigger is always better.
In this video, I walk through a sample case involving a couple near retirement with a large IRA and a plan to convert aggressively before required minimum distributions begin.
At first, that strategy may sound reasonable. Pay taxes now, reduce future RMDs, and move more money into a Roth IRA.
But once you look more closely, the decision becomes more complicated.
A Roth conversion can affect more than just your tax bracket. It can also affect marketplace health insurance subsidies before Medicare, future Medicare premiums through IRMAA, how much of your Social Security becomes taxable, and how much flexibility you keep in your taxable brokerage account.
The real question is not simply whether Roth conversions are good or bad.
The question is whether the amount you are converting actually makes sense for your situation.
In some cases, large aggressive conversions may cause you to pay more tax sooner than necessary. A smaller, more targeted approach may work better.
If you are within a few years of retirement and most of your savings is in pre-tax accounts, this video will help you think through what needs to be considered before making a Roth conversion decision.