By Kimberly Lankford
From Kiplinger’s Personal Finance
You could have a tax time bomb in your retirement savings. If you’re like many people in their 50s and 60s, you have diligently set aside pretax money in a 401(k) or a traditional individual retirement account (IRA), and that money has been growing tax-deferred through the years. But when you start taking it out, your withdrawals will be taxable. And you can’t let it keep growing forever. Eventually, you’ll need to take required minimum distributions (RMDs)—currently starting at age 73—based on your life expectancy, and those mandatory withdrawals could come with a big tax hit.
“If you’ve done a great job of saving in your pretax 401(k) and traditional IRAs, your RMD amount may be a surprisingly big number—and it could potentially bump you into a higher tax bracket,” says Roger Young, a certified financial planner and thought leadership director for T. Rowe Price. If you have $1 million in tax-deferred accounts, for example, that first RMD at age 73 would be nearly $40,000 in taxable income, and you’d have to take required withdrawals every year.
Large RMDs can also have a ripple effect on other parts of your finances. Depending on how much other income you have, you could end up paying the Medicare high-income surcharge, which would boost your Medicare premiums by about $900 or more, per person, each year. The extra income from the RMD may also cause a larger portion of your Social Security benefits to be taxable.
The tax situation could get worse after one spouse dies and the survivor goes from filing a joint tax return to filing singly. The survivor may still have to take RMDs from their own IRAs as well as from IRAs they inherited from their spouse, so their income level may not change much. But that income may be taxed at a higher rate for a single filer than for a married couple filing jointly. The 24 percent bracket, for example, applies to income of $103,351 to $197,300 for a single filer and $206,701 to $394,600 for joint filers in 2025.
If you convert money from traditional IRAs and 401(k)s to Roth IRAs before that happens, however, you can control the tax consequences and the timing. “RMDs start now at 73, and it’s a tax torpedo—a huge bucket that is subject to income taxes,” says Maria Bruno, a CFP and financial planning strategist at Vanguard. “Start thinking about it earlier. Through Roth conversions, you can manage the income taxes throughout the years.”
You’ll pay taxes when you make the conversion, but then the money will grow tax-free for the future in the Roth, and you’ll never have to take withdrawals during your lifetime. If you do need to tap the account, your withdrawals aren’t taxable, and they won’t lead to higher Medicare premiums or affect the taxation of your Social Security benefits. “If you have different buckets in retirement, you can control your tax bracket and tax situation. It gives you a lot more flexibility,” says Jaime Eckels, a partner with Plante Moran Wealth Management in Auburn Hills, Michigan.
After you die, your heirs can inherit the Roth income-tax-free, which is especially valuable since the SECURE Act of 2019 eliminated the stretch IRA (SECURE stands to Setting Every Community Up for Retirement Enhancement). Instead of spreading out withdrawals over their lifetimes, non-spouse beneficiaries now have to take the money out of inherited IRAs within 10 years—often when children are in their peak earning years and in their highest tax bracket.
But you must be careful with Roth conversions. Even though they’re a popular financial planning tool and can have a lot of benefits, they’re not always the best move. “A lot of times people get excited about doing Roth conversions, but they don’t think of the other implications,” says Eckels.
Converting too much money now could result in outcomes you had hoped to avoid later on—bumping you into a higher tax bracket, crossing the income cutoff for certain tax benefits, and boosting your Medicare premiums and taxation of Social Security benefits.
And you can no longer undo a Roth conversion if you change your mind or end up earning more than you were expecting. In the past, you could “recharacterize” a Roth conversion, switching back to a traditional IRA. But because of tax-law changes, do-overs have been prohibited since 2018.
Key Considerations
As you decide whether to convert money from a traditional IRA to a Roth, the first step is to consider how your current income tax rate might compare to your future rate. “You generally benefit from a Roth conversion if you do it at a marginal tax rate that is lower than it would be when you take the money out,” says Young. (Your marginal tax rate is the highest rate you’ll pay on your income; read on for more.)
You can’t know exactly what will happen with tax rates or your tax bracket in the future, but you may benefit from a Roth conversion in years when your income dips—for example, if you are unemployed for part of the year, or if you retire but delay claiming Social Security benefits. Younger workers can benefit from converting early in their careers, when they’re likely in a lower tax bracket than they will be later in life (although contributing directly to a Roth 401(k) or Roth IRA is even more advantageous). “Anybody who has a traditional IRA should consider whether a conversion can make sense,” says Bruno.
It’s not a one-time decision. You can spread out your conversions over several years based on your income and deductions, running the numbers each year to determine the best strategy. Add up your sources of taxable income for the year—from Social Security, a pension, investment income, rental income, working and other sources—and see how the additional income from a Roth conversion would affect your tax liability and benefits.
©2025 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.
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