SmartAsset and Yahoo Finance discuss the strategy of converting a 401(k) into a Roth IRA 20% at a time to avoid taxes and RMDs. While technically allowed, the decision on whether to do this depends on your specific financial situation. The younger and lower income earners may benefit more from this strategy.

Pre-tax retirement accounts have a rule called the required minimum distribution (RMD), which starts at age 73. This can disrupt financial planning for some households who may prefer other income sources. To avoid RMDs, some households convert their 401(k) into a Roth IRA, which is not subject to RMDs.

Roth conversions have immediate tax implications with significant considerations to manage this tax event. Converting in stages and earlier in life can help reduce tax rates and overall tax bill. A financial advisor can provide guidance tailored to your specific situation.

The decision to convert your 401(k) to a Roth IRA 20% at a time depends on various factors such as age, income, and retirement plans. The strategy may work well for younger workers with lower income, but may not be as beneficial for those closer to retirement.

For the right household, a Roth conversion can lead to a tax-free retirement. Consult a financial advisor to create a comprehensive retirement plan and minimize conversion taxes. SmartAsset offers a free tool to match you with financial advisors who can help achieve your financial goals.

Read more at Yahoo Finance: Should I Convert 20% of My 401(k) Annually to a Roth IRA to Reduce Taxes and RMDs?