One of the biggest concerns many retirees have is taxes.
After years of saving into retirement accounts, many people are surprised to learn that taxes can still play a major role in retirement income planning.
One strategy that may help reduce taxes later in life is a Roth conversion.
One of the biggest concerns many retirees have is taxes.
After years of saving into retirement accounts, many people are surprised to learn that taxes can still play a major role in retirement income planning.
One strategy that may help reduce taxes later in life is a Roth conversion.
At Plumb Financial, we often help households explore whether Roth conversions make sense as part of a long-term retirement and tax strategy.
A Roth conversion is the process of moving money from a traditional pre-tax retirement account into a Roth IRA.
For example:
When you convert money from a traditional IRA to a Roth IRA, the amount converted becomes taxable income in the year of the conversion.
In simple terms:
You pay taxes now so the money may potentially grow tax-free in the future.
Many people build retirement savings inside a 401(k) during their working years.
Those accounts may contain:
When funds leave a 401(k), the money is generally separated by tax type:
From there, a Roth conversion can move traditional IRA funds into a Roth IRA.
Because the traditional IRA funds were never taxed before, the IRS treats the conversion amount as taxable income.
For example:
If you convert $100,000 from a traditional IRA to a Roth IRA, the IRS generally treats that as $100,000 of taxable income for that year.
The main reason is future tax flexibility.
Once funds are inside a Roth IRA:
That can create significant long-term planning opportunities.
One common Roth conversion strategy is converting only enough money each year to stay within a desired tax bracket.
Instead of converting everything at once, many households:
This allows people to be more intentional about their long-term tax strategy.
The goal is often not to eliminate taxes completely—but to better control when and how taxes are paid.
Tax-free income can become especially valuable later in retirement because many retirement costs are tied to taxable income.
Medicare premiums can increase when taxable income rises above certain thresholds.
Reducing taxable income may help lower future Medicare costs.
A portion of Social Security benefits may also become taxable depending on overall taxable income.
Strategic Roth planning may help reduce how much of those benefits are subject to taxes.
Traditional retirement accounts are subject to Required Minimum Distributions, also known as RMDs.
At certain ages, the IRS requires individuals to begin withdrawing money from traditional retirement accounts.
Those withdrawals:
Without planning, RMDs can sometimes become much larger than expected.
Roth IRAs are different.
Original account owners are generally not required to take RMDs from Roth IRAs during their lifetime.
This gives retirees more control over:
Roth conversions also come with important timing rules.
Generally, earnings on converted funds must remain in the Roth IRA for at least five years before they can be withdrawn tax-free, depending on age and circumstances.
Because of these rules, Roth conversion strategies should always be reviewed carefully as part of a broader financial plan.
Roth IRAs may also provide benefits for heirs and beneficiaries.
Because qualified Roth distributions are generally tax-free, beneficiaries may receive assets with fewer future tax concerns compared to traditional retirement accounts.
For families focused on long-term legacy planning, this can be an important consideration.
Roth conversions can be powerful—but they are not the right fit for everyone.
The best strategy depends on factors like:
At Plumb Financial, we help individuals and families build personalized retirement tax strategies designed around their goals and future income needs.
If you are wondering whether a Roth conversion strategy could help reduce taxes in retirement, we would love to help you explore your options.
Starting your first investment account can feel overwhelming.
Questions like:
Where do I start?
What should I invest in?
How much should I contribute?
Am I doing this correctly?
are completely normal.
The good news is you do not need to have everything figured out to begin building wealth.
Now here is the real question:
Can your business actually function without you?
At Plumb Financial, we work with many business owners who have built successful companies—but often, the business still depends entirely on them to operate every day.
If every decision flows through you, your clients only want to work with you, and the business cannot run when you step away, then you may not truly own a business yet.
You may own a job.
Most business owners start the year focused on goals like increasing revenue, gaining new clients, or growing their team.
Those goals are important—but there is another way to look at your business planning that can completely change how you build your company.