From Yahoo Finance: 2025-04-13 08:30:00

A 62-year-old with $1.5 million in a traditional IRA may consider converting $150,000 per year to a Roth IRA to avoid required minimum distributions (RMDs), which can raise tax bills in retirement. Strategic Roth conversions distribute RMD-susceptible IRA money into accounts not subject to RMDs, reducing overall lifetime taxes and improving predictability.

The IRS mandates RMDs from tax-deferred retirement accounts at age 73. The SECURE 2.0 Act has moved the RMD age back to 73 for certain individuals, with further increases to age 75 in the future. Each RMD withdrawal adds to taxable income, potentially pushing individuals into higher tax brackets.

Roth conversions allow individuals to avoid RMDs and preserve tax flexibility. While traditional IRAs require taxes upon withdrawal, Roth withdrawals are tax-free. Paying taxes on smaller conversions now can result in lower lifetime taxes overall compared to unpredictable RMDs later.

An incremental Roth conversion strategy distributes tax liability over time, converting just enough each year to fill up the current income tax bracket. This approach aims to avoid higher tax brackets while managing tax liabilities effectively. Consult with a financial advisor to optimize your retirement income plan and Roth conversion strategy.

Roth conversions offer tax benefits but also come with risks and limitations. Considerations include current and future tax rates, income, expenses, deductions, state taxes, and investment returns. Consult a financial advisor to develop a conversion strategy tailored to your situation, weighing various factors to optimize tax management and future financial flexibility.

Strategic Roth IRA conversions can reduce lifetime taxes compared to traditional IRA distributions. By paying income taxes now through incremental conversions, future RMD-driven tax bills can be minimized. However, Roth conversions create current tax liabilities and limit tax-free access to converted funds in the future. Consult with a financial advisor to assess trade-offs and time potential Roth IRA conversions effectively.

To estimate retirement savings growth, use SmartAsset’s retirement calculator. Maintain an emergency fund in a liquid account to cover unexpected expenses. Consider high-interest accounts for earning compound interest while keeping funds easily accessible. Compare savings accounts to find the best option for your financial needs.

Read more: Is Converting $150k Annually From My $1.5M IRA to a Roth a Smart Move at 62?