From Yahoo Finance: 2025-04-28 08:30:00

Approaching retirement, managing taxes on income becomes crucial. Pre-tax portfolios like 401(k)s and traditional IRAs incur ordinary income taxes on withdrawals and have Required Minimum Distributions (RMDs). Converting to a Roth IRA in your 60s eliminates taxes in retirement and RMD requirements, improving your estate’s after-tax value. However, Roth conversions can be costly upfront due to conversion taxes.

Pre-tax retirement portfolios, such as 401(k)s, have two main issues: ordinary income taxes on withdrawals and RMDs starting at age 73, triggering tax events to collect planned revenues. Roth IRAs offer tax-free growth and no RMDs, making them appealing for tax planning.

Roth conversions allow transferring money from pre-tax portfolios to a Roth IRA, offering tax-free growth without RMDs. However, converting to a Roth IRA incurs upfront conversion taxes, increasing taxable income for the year. Consider consulting a financial advisor for personalized guidance on Roth conversions.

Conversion taxes can be a drawback to Roth conversions, especially as you near retirement. Staggered conversions, converting smaller amounts over time, can help manage tax brackets and reduce overall conversion tax burden. By converting smaller amounts, you can keep tax brackets lower and potentially save on total taxes paid.

Late-career Roth conversions may not save money on taxes due to significant conversion taxes, especially if approaching retirement. However, Roth IRAs can be beneficial for the right individuals, preserving wealth for heirs and eliminating taxes and RMDs in retirement. Consider speaking with a financial advisor for tailored advice on Roth conversions.

While Roth IRAs eliminate taxes and RMDs, ensure that long-term savings exceed upfront conversion taxes. Timing Roth conversions well is crucial, with early conversions maximizing tax advantages. Seek a financial advisor to create a comprehensive retirement plan tailored to your needs and goals.

Read more: At 62, Is Converting $90k Annually From My $900k 401(k) a Good Move to Avoid RMDs?