Should We Do a Roth Conversion Before RMDs Start?

Quick Summary: For many retired couples, the years between leaving work and the start of required minimum distributions (RMDs) and Social Security can create a lower-tax planning window. A Roth conversion may be useful during that window, but whether it makes sense depends on our full tax picture: income sources, account balances, Medicare premiums, charitable goals, estate plans, and what a surviving spouse may face later.

At Money & Clarity, our role as a fiduciary wealth management firm in Cincinnati, OH is to help families look beyond a single tax return. We want to understand how today’s choices may affect the rest of retirement—not just this year.

The “Lower Tax Bracket in Retirement” Assumption

It is common to hear, “I’ll be in a lower tax bracket in retirement.” Sometimes that is true. A paycheck may stop, commuting costs may fall, and work-related savings contributions may end. But retirement income does not always stay low.

For couples with substantial traditional IRA or pre-tax 401(k) balances, taxes may rise later in retirement. Withdrawals from those accounts are generally taxable, and once RMDs begin, we no longer have complete freedom to decide whether to take income from those accounts. Add Social Security, pension income, investment income, or a part-time consulting role, and the household’s taxable income can look very different from the early retirement years.

That is why we encourage our Cincinnati, OH clients to replace assumptions with a coordinated long-term tax plan. The question is not simply, “Will we pay tax on a conversion?” It is, “When might we pay tax if we do not convert?”

How RMDs Can Change the Picture

RMDs are annual withdrawals that retirement-account owners generally must take from traditional IRAs and many employer retirement plans after reaching the applicable required beginning age. The required amount is based in part on the prior year-end account balance and an IRS life-expectancy factor. In general, the distribution is included in taxable income.

RMDs can be inconvenient when we do not need the money for spending. They may still increase taxable income, which can affect other parts of a retirement plan. A larger RMD can also make it harder to manage taxes from year to year because that income is no longer optional.

Roth IRAs work differently during the original owner’s lifetime: they are not subject to lifetime RMDs. That does not make a Roth conversion automatically right, but it can make Roth assets a valuable source of flexibility later.

What Happens in a Roth Conversion?

A Roth conversion moves money from a traditional IRA or eligible workplace retirement account into a Roth IRA. The converted amount is generally treated as taxable income for the year of the conversion. In other words, we choose to recognize income now rather than potentially recognizing it later through future withdrawals.

That tax cost is real, so a thoughtful conversion strategy is usually more helpful than an all-or-nothing decision. We may consider converting only enough to use a favorable part of a tax bracket, while leaving room for other income, deductions, capital gains, charitable giving, and unexpected events.

We also need to consider how the tax will be paid. Using funds outside the retirement account may preserve more dollars inside the Roth IRA, but the right approach depends on available cash flow, liquidity needs, and the broader financial plan. Money & Clarity coordinates with each client’s CPA so that investment, retirement, and tax decisions are considered together.

Medicare Premiums and IRMAA Deserve a Place in the Conversation

A conversion can increase modified adjusted gross income, which may affect Medicare premiums through the Income-Related Monthly Adjustment Amount, commonly called IRMAA. Medicare generally looks back to tax-return income from an earlier period when determining whether an extra premium applies.

That does not mean we should avoid every conversion that could affect IRMAA. It means we should know the tradeoff before acting. In some cases, paying a higher Medicare premium for a period may still be worthwhile if a conversion meaningfully improves future tax flexibility. In other cases, it may make sense to reduce, delay, or spread out a conversion. The key is making a deliberate decision rather than discovering the consequence after the fact.

The Widow’s Penalty: A Planning Issue for Couples

One of the most overlooked retirement tax issues is what happens after the first spouse dies. The surviving spouse may eventually file as a single taxpayer while still receiving much of the household’s income, including RMDs, Social Security, pensions, and investment income. Tax brackets and Medicare income thresholds for a single filer can be less accommodating than those available to a married couple filing jointly.

This is often called the widow’s penalty. It is not a prediction about your family’s future; it is a reason to plan for more than the years when both spouses are alive. Carefully timed Roth conversions while filing jointly may help reduce the size of future pre-tax account balances and provide the survivor with a more flexible pool of tax-free retirement assets, assuming qualified-distribution rules are met.

Roth Conversions and What Heirs May Inherit

Tax planning is also part of legacy planning. Heirs who inherit a traditional retirement account may have to take taxable distributions under applicable beneficiary rules, potentially during their own higher-earning years. Roth assets can be more flexible from an income-tax perspective for beneficiaries, although inherited-account distribution rules still matter.

That is why conversion decisions should fit alongside beneficiary designations, estate documents, charitable intentions, and family goals. Our Legacy Planning work helps bring those moving pieces into one conversation.

Questions to Ask Before Converting

Before moving forward, we encourage couples to consider:

• What will our taxable income likely look like before and after RMDs begin?
• When do we expect to begin Social Security, and what other income sources will be in place?
• Could a conversion affect Medicare premiums through IRMAA?
• Do we have cash available to pay the tax without disrupting our lifestyle or reserve needs?
• How could the surviving spouse’s tax situation change?
• What do we want our children, other heirs, or charities to receive?

Tax planning also belongs beside planning for long-term care, insurance, and longevity. Explore our approach to Health Care Costs in Retirement to see how these decisions can connect.

FAQ

Should I do a Roth conversion before RMDs start?

Possibly. The period before RMDs and Social Security begin can be a useful time to evaluate conversions, especially if your taxable income is temporarily lower. The right decision depends on your complete tax picture and should be coordinated with your CPA.

Will a Roth conversion push me into a higher tax bracket?

It can, because the converted amount is generally included in taxable income. A well-designed plan may use partial conversions and account for other income sources rather than treating the decision as all or nothing.

Can a Roth conversion affect Medicare premiums?

Yes. A conversion can raise income used to determine whether IRMAA applies. We should weigh that possible premium impact against the potential long-term value of reducing future taxable RMDs.

Will my spouse pay more tax after I’m gone?

A surviving spouse may eventually face single-filer tax brackets and Medicare income thresholds while still receiving substantial household income. Planning ahead can help us prepare for that possibility with more flexibility.

Is a Roth conversion only about taxes?

No. It can also affect retirement spending flexibility, Medicare costs, charitable giving, legacy goals, and the financial experience of a surviving spouse or heirs.

This article is educational content, not tax advice. At Money & Clarity in Cincinnati, OH, we coordinate with each client’s CPA to help ensure retirement and tax decisions fit the full financial plan. If you are wondering whether a conversion belongs in your strategy, schedule a visit so we can review your tax picture together.