We’re 70 With $1.4M in an IRA and $99k in Retirement Income. Is a Roth Conversion Still an Option?

By Investor Empires On Nov 22, 2024

Stephen Jarvis, CPA

My wife and I are 70 years old. We paid for everything, including the house. Between my $29,000 pension and Social Security, we get a gross income of $99,000 a year, which is more than enough. Our current savings in our brokerage account is $700,000. Our individual retirement account (IRA) totals $1.4 million. Our Roth is worth $400,000. We both expect to live to be ninety. At our age, is it too late to have a conversation with Ruth?

-unknown

The short answer is no. There is no age limit on your ability to do this Convert to Roth.

There is also no earned income requirement to convert to a Roth. As long as you have a balance in your IRA, in theory, you can continue converting to a Roth for as long as you want.

The bigger question is: Does converting to a Roth advance your goals regarding inheriting your wealth?

This should be your starting place before starting a Roth conversion strategy no matter your age. But it becomes especially important when you consider Roth conversions as you approach and start taking them Required minimum distributions (RMDs).

Most articles and conversations about converting to a Roth will focus on the years between retirement and taking RMDs. Those years can present a great opportunity to convert IRA dollars to a Roth. But it’s not your only chance. Answer this question: What do I want to happen to my wealth when I die? The answer is in the details. Here’s how to think through this strategy.

A Financial advisor It may help you understand how to manage the tax ramifications of a Roth conversion.

An argument against a Roth conversion

Ask an Advisor: Is it too late to convert to a Roth?

On one end of the spectrum, let’s say all of your wealth is given to your favorite charity when you die. If a qualified charity receives your IRA upon your death, no taxes will be due, and you should strongly consider not converting any of your IRA balance to a Roth during your lifetime.

In this case, converting to a Roth would be electing to pay taxes you can never pay.

Case for a Roth Conversion

It would be the opposite extreme if your goal is that Leave all your money to your childrenOr grandchildren or other loved ones – and making sure they never have to worry about paying taxes on those dollars.

In this case, a case can be made for trying to convert every last dollar of your IRA balance to a Roth before you die. That way, your beneficiaries would get a huge tax-free pie, and the IRS wouldn’t be able to share a single slice. This may not result in the greatest tax savings, but it will be the best way to ensure that your beneficiaries do not have to worry about taxes.

The middle ground in Roth conversions

Ask an Advisor: We are 70 years old, have $99,000 in retirement income, $1.4 million in IRAs and other investments. Is it too late to convert to a Roth?

Most people will end up somewhere in between, where converting to a Roth can make a lot of sense but only up to a point.

Roth conversions make more sense when you can choose to Pay income tax On the balance of your IRA and roll it over to the Roth in a relatively low-income tax year. “Relative” is an important word here because it will be unique to each taxpayer’s situation.

The question to ask yourself here is: Do I worry that at some point in the future I may be in a higher tax bracket than I am now?

Consider using This free tool To align with a financial advisor for professional guidance for your Roth conversion.

Roth conversion factors to understand

If you decide that a Roth conversion helps achieve your wealth goals, there are several factors to consider when determining how much to convert in a given year. they:

How much income tax will be due?

In general, the more we can spread Taxable incomeThe lower the federal income tax we will pay. This is an oversimplification. But it provides a starting point for thinking about how to put together a Roth conversion strategy.

In the example provided in this question, generally speaking, converting the full $1.4 million from an IRA to a Roth in one year would result in more taxes than distributing those conversions over the taxpayer’s remaining life expectancy.

Other tax implications

Federal income tax gets all the attention when Roth conversions come up. But your marginal tax rate (the amount of tax you’ll pay on your next dollar of income) isn’t the only consideration.

In this example, 85% of taxpayers Social security (the highest possible amount) that is already included in taxable income. But for taxpayers with lower taxable income, Roth conversions have the potential to change the amount of Social Security that is taxable.

Increasing taxable income can also change a taxpayer’s eligibility for tax credits and deductions. For taxpayers who haven’t started claiming Medicare, the premium tax credit can be especially impactful.

Medicare premiums

For taxpayers who are approaching or already turning 65 years old Medical careIt’s important to remember that the amount you pay for your Medicare is affected by your taxable income (specifically by your modified adjusted gross income) and can drive up the true cost of doing a Roth conversion.

This can be especially dangerous because each income bracket for Medicare premiums is treated as a cliff. So, once you cross the $1 threshold, your premiums will move to the next level. In other words, in exchange for a penny, in exchange for a pound.

What if tax rules change in the future?

I’m often asked if I’m concerned that Congress will change the Roth rules in the future and that having large Roth balances could become a liability.

My answer is always the same: The tax code is written in pencil, and Congress can change anything it wants. We have to do the best we can with the information we have and the laws currently in effect.

A Financial advisor It can help you navigate changes in legislation, including the scheduled expiration of provisions of the Tax Cuts and Jobs Act in 2026.

What to do next

My crystal ball is still broken, so anything I say about future rule changes will be just guesswork. What I do know is that holding an IRA is like having a variable rate mortgage with the IRS where they have the ability to change the interest rate to whatever they want, whenever they want. The opportunity to take the IRS out of the picture by converting IRA dollars to Roth dollars is always worth considering.

Stephen Jarvis, CPA, is SmartAsset’s financial planning columnist and answers reader questions on personal finance and tax topics. Do you have a question you want answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Stephen is not involved with the SmartAdvisor Match platform and was compensated for this article. Taxpayer resources from the author can be found at retirementtaxpodcast.com. Financial advisor resources from the author are available at Retirement Tax Services.com.

Find a financial advisor

If you have questions about your investment and retirement situation, a A financial advisor can help. Finding a financial advisor is not difficult. Free SmartAsset tool Matches you with up to three vetted financial advisors serving your area, and you can interview your advisors at no cost to determine which advisor is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, Start now.
Planning for retirement? is used SmartAsset’s Social Security Calculator To get an idea of what your benefits could look like in retirement.
Keep an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time converting. Learn more about SmartAsset AMP.