Roth conversions are one of the most talked-about strategies in retirement planning—and for good reason. They provide a way to transform tax-deferred retirement assets into tax-free dollars, potentially reducing lifetime taxes and giving you greater flexibility in retirement. However, while the concept is simple, coordinating conversions within your overall financial plan requires careful strategy.
What is a Roth Conversion?
A Roth conversion involves moving funds from a tax-deferred account—like a Traditional IRA or 401(k)—into a tax-advantaged Roth account. You pay ordinary income taxes on the converted amount in the year of the conversion, but the money then grows tax-free and can be withdrawn tax-free in retirement (if IRS rules are followed).
While it might seem counterintuitive to pay taxes today, a well-coordinated Roth conversion can significantly reduce the total taxes paid over your lifetime, especially if timed strategically.
Key Considerations When Coordinating Roth Conversions
- Convert in Lower Tax Brackets
Performing conversions in years when your income is lower helps minimize the taxes owed on the converted amount. For example, if you are in the 22% tax bracket, you might convert just enough assets to fully utilize that bracket without pushing into a higher one. - Legacy Planning
Roth accounts can be powerful tools for leaving a tax-free legacy. If you anticipate that tax-deferred assets may grow beyond your retirement needs, converting to Roth allows your beneficiaries to inherit a tax-free account, giving them more flexibility and less tax burden. - Impact on Medicare (IRMAA)
Roth conversions count as income for Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) calculations. Planning conversions carefully is crucial to avoid unintentionally increasing Medicare premiums.
Why Coordination Matters
Roth conversions should never be done in isolation. Coordinating with your overall income plan, other retirement withdrawals, and potential tax obligations ensures you’re optimizing the timing and amounts to achieve maximum tax efficiency. For those still saving for retirement, contributing directly to Roth accounts is another effective way to secure future tax-free income.
Roth conversions are powerful tools, but proper planning is essential. Partnering with a knowledgeable financial advisor ensures your strategy aligns with your overall retirement plan, minimizes taxes, and supports your long-term goals. Contact our team today to start coordinating your Roth conversions and maximize your retirement strategy.
Bibliography
UBS Wealth. (2025, February 19). Maximize your savings: Tax-efficient retirement withdrawal strategies. UBS Wealth Management USA. https://www.ubs.com/us/en/wealth-management/our-solutions/planning/retire-planning/articles/maximize-savings-tax-efficient-withdrawals.html
OneAscent Financial Services, LLC (“OAFS”), d/b/a The Cornerstone Financial Group, is a registered investment adviser with the United States Securities and Exchange Commission. OAFS does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by OAFS or any unaffiliated third party. OAFS is neither an attorney nor accountant, and no portion of the presented content should be interpreted as legal, accounting, or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.