Coordinating Roth Conversions

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income taxes on the converted amount in the year of the conversion, but the money then grows tax-free and can be withdrawn tax-free in retirement (if IRS rules are followed).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.