Did I Miss My Chance To Do A Roth Conversion?

Dear Wealth Wise: I'm 75 with a large traditional IRA balance. I'm already taking RMDs. I want to create a tax-efficient inheritance, but converting to a Roth IRA will only bump up my tax rate and IRMAAs. Did I miss my chance? — Late to the Roth Party

Dear Late to the Roth Party: Retiring with a large traditional IRA balance is a good thing in theory. In practice, it can create complications.

A large traditional IRA can lead to large required minimum distributions (RMDs), which can result in high taxes. Plus, massive RMDs can trigger income-related monthly adjustment amounts, or IRMAAs, which could raise Medicare premiums by hundreds of dollars per month.

A large traditional IRA also creates a potential tax headache in an inheritance situation. When a non-spouse inherits an IRA, they must empty the account within 10 years. That can create issues when those inheriting a large IRA are in their peak-earning years and subject to high tax rates on those distributions.

For all of these reasons, Roth conversions can be a strategy worth pursuing, even after RMDs begin. Our reader wonders whether they’ve missed the boat on Roth conversions. Here’s what our experts have to say.

Roth conversions are still possible

When you're already taking RMDs, Roth conversions can seem daunting, especially if you're worried about higher Medicare costs. But Al Kingan, JD, an estate and business planning executive with MassMutual, says, "I would not say that this person missed a Roth conversion opportunity."

Kingan says our reader can consider filling up their current tax bracket, especially if their highest applicable tax rate is 22% or 24%, and see what conversion amount that allows each year. Note that RMDs must be withdrawn first from a traditional IRA and cannot be converted to a Roth. Once you've taken your RMDs, additional money can be converted to a Roth.

For example, our reader may be able to move $50,000 a year into a Roth IRA without landing in a higher tax bracket. If that tactic is also manageable from an IRMAA standpoint, it may be worth doing, even if only a portion of the traditional IRA gets converted in our reader's lifetime.

Investing unneeded RMDs creates estate-planning opportunities

"Saving the excess in a taxable investment account can improve the overall inheritance picture for their heirs," Kingan says. "Appreciation within the account receives a step-up in basis at their death. These are assets that could be immediately liquidated after death to provide for the needs of surviving beneficiaries with no tax consequences."

Kingan further explains that even if a taxable account grows after it's inherited, it's only the post-death appreciation that's subject to tax. And because there's no 10-year rule to worry about, this approach gives our reader's heirs more flexibility.

Strategic giving can produce tax savings

Large RMDs can create big tax bills even without introducing Roth conversions into the conversation. But if the goal is to do at least a partial conversion, Kingan says, our reader may want to consider qualified charitable distributions, or QCDs.

QCDs allow savers to transfer funds directly from an IRA to a qualified charity, thereby satisfying RMDs and lowering their adjusted gross income (AGI). That keeps taxable income lower, leaving room in their current tax bracket to execute a partial Roth conversion without spiking their tax rate.

"The QCD limit in 2026 is $111,000," Kingan says, so there's plenty of opportunity to snag this tax break while doing good.

Life insurance may be worth considering

Since our reader clearly hopes to avoid burdening their heirs with a heavy tax bill, Charles Czajka, founder of Macro Money Concepts, says they should consider life insurance.

"I have hundreds of clients who are able to enjoy their retirement and spend what they want to, knowing that upon death, a tax-free death benefit will go to beneficiaries," he says. "This is also a good way to help your heirs pay the taxes on the qualified money you leave them."

Czajka recommends using the portion of RMDs that isn't needed for living costs to purchase life insurance. That way, if our reader's heirs are still left with a sizable traditional IRA during their peak-earning years, they can potentially use the death benefit to cover the taxes that come due.

The right inheritance plan is key

There's a reason many experts insist that Roth conversions should be a years- or decades-long plan. Once you start taking RMDs, there's often limited opportunity to convert a large balance in a tax-efficient manner.

Kingan says our reader should accept the reality that a full Roth conversion may be off the table. But he says our reader can coordinate inheritance distributions with their beneficiaries' tax brackets.

"For example," Kingan says, "someone might leave more traditional IRA assets to lower-tax bracket beneficiaries, and Roth assets or other non-qualified investments to higher tax bracket beneficiaries."

Hypothetically, if our reader is able to convert $1 million to a Roth IRA and has $3 million remaining in a traditional IRA, they could split the Roth funds among their children and leave the $3 million to their grandchildren, who may not be as far along career-wise and whose earnings may be significantly lower.

A word from Wealth Wise

Our reader has fallen into a fairly common trap. Years of strong saving habits have landed them in a tricky spot with regard to estate planning. That's why it's often a good idea to consult with a financial professional during your wealth-building years. Had our reader perhaps started Roth conversions years earlier, they'd have more options.

This isn't to say that they're in a bad situation by any means. The point, rather, is that continuous planning could lead to better outcomes in the context of estate planning. Given the amount of wealth that's expected to change hands in the coming years, it's an important lesson for all savers to keep in mind.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts in this advice column are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.

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