I’ve never met anyone who wants to overpay the IRS. As a result, one of the number one topics we discuss with clients is how to reduce their lifetime tax bill. More specifically, whether or not they should consider a Roth Conversion with some of their IRA dollars.

Before we talk about the seven reasons that might cause you to delay, reduce, or reconsider doing a Roth conversion, let’s look at some big news brewing in Washington related to taxes on Social Security.

Social Security has a complicated formula to determine how much of your benefit will be included in your taxable income. On the low end, your entire benefit could be tax-free (0% included in taxable income). On the high end, up to 85% of your Social Security benefit could be taxable.

Senior Citizens Tax Elimination Act

Congressman Thomas Massey from Kentucky, along with 29 Republican co-sponsors, has introduced the Senior Citizens Tax Elimination Act. To provide some context, prior to 1986, Social Security benefits weren’t taxable at all. In 1986, Social Security implemented revisions and created the provisional income formula that determines how much of your benefit is included in taxable income.

Massey’s bill would essentially repeal the inclusion of Social Security benefits in taxable income altogether. This would also include tier one railroad benefits (pensions from working at the railroad). The bill was first introduced last year, but now it’s legitimate. It’s in the House and seems to have a decent chance of passing.

However, there are costs associated with implementing this bill. According to the Committee for Responsible Government, this is estimated to cost taxpayers about $1.8 trillion over the next decade. When we couple this with Social Security’s projected insolvency date of around 2033-2034, it raises questions about funding.

Currently, 80% of Social Security benefits are funded by payroll taxes from current workers. The Social Security trust fund supplements the remaining 20%. If benefits become tax-free, this could accelerate the insolvency date.

So, how will they pay for this bill? My crystal ball says taxes will increase in some way to fund the deficits projected for Social Security and Medicare.

Why is this relevant to our Roth conversion discussion? Because, while we know what taxes look like today, it’s virtually impossible to be 100% certain about future tax rates.

What is a Roth Conversion?

A Roth conversion involves moving or converting funds from a tax-deferred vehicle (like a traditional IRA, 401(k), 403(b), or TSP plan) into a tax-free vehicle. In exchange for doing this, you elect to pay the taxes now.

Why would you do this? At one point, you believed deferring taxes was the way to go, or maybe you didn’t have access to a Roth account. This is pretty common—15-20 years ago, many employers didn’t offer Roth 401(k) plans. But now you have the ability to convert some of those assets to Roth.

The benefit of a Roth account is tax-free growth going forward, as opposed to tax-deferred growth. But there are situations where converting might not be the best strategy.

1. You’re in a Higher Tax Bracket Today Than You Will Be in the Future

The first reason to reconsider a Roth conversion is if you’re currently in a higher tax bracket than you expect to be in the future. There are several scenarios where this might happen:

When you retire, your W-2 income or self-employment income disappears. Your only income might be capital gain distributions, dividends, interest, a small pension, or IRA distributions. If your tax bracket will drop substantially in retirement, it might make sense to wait until you enter what we call the “Roth conversion window.” This window is after retirement, but before you start taking Required Minimum Distributions (RMDs) and/or Social Security.

Your income might be temporarily high due to things like

• Selling a business, stock, or rental property
• Receiving a large bonus
• Inheriting money

Doing a Roth conversion during these high-income years could push you into an unnecessarily higher tax bracket.

You might believe taxes will decrease in the future due to legislative changes, making it beneficial to wait for potential tax cuts before converting.

In short, if you expect your income bracket to drop at some point, it might be worth evaluating conversions at that time instead of now.

2. You’re Leaving a High-Income Tax State for a Low or No-Income Tax State

According to the Tax Foundation, state income taxes significantly influence net migration in the U.S. The top third of states with positive net migration have an average state income tax of about 3.5%. The bottom third average nearly double that at 6.7%.

I don’t believe you should move to a state in retirement solely because of taxes. However, if you’re planning to move from a high-tax state like New Jersey, New York, or California to a low or no-income tax state, you might consider waiting to do Roth conversions until after your move.

You could potentially benefit from both a lower federal bracket at retirement and little to no state income tax, maximizing your tax savings on the conversion.

It will be interesting to see how migration patterns evolve as companies bring employees back to in-person work. For retirees with the flexibility to move anywhere, taxes will likely remain an important consideration.

3. Your Heirs Are in Lower Tax Brackets

The SECURE Act, passed at the end of 2019, eliminated the “stretch IRA” for most beneficiaries. Previously, individuals who inherited an IRA could stretch distributions over their life expectancy. Now, most non-spouse beneficiaries must liquidate the account within 10 years.

This applies to both traditional IRAs and Roth accounts. The key difference is that Roth account distributions during those 10 years are tax-free to beneficiaries, while traditional IRA distributions are fully taxable.

If your beneficiaries are in a very low tax bracket, while you are in a higher tax bracket, there could be an argument for not converting. For example, if you’re in the 24% or 32% bracket due to Social Security, a pension, and investment income, while your children are in the 10% or 12% bracket, it might make more sense to leave those assets to your heirs and let them pay taxes at their lower rate.

The challenge with this approach is that it requires knowing exactly when you’ll pass away and what tax bracket your children will be in at that time. Your 25-year-old child who’s currently in graduate school with no income might eventually have high earning potential or start a successful business, putting them in a higher tax bracket than you.

Additionally, even if your beneficiaries are in a relatively low tax bracket, inheriting a large IRA could push them into a higher bracket during the 10-year distribution period. For example, if your IRA is worth $2 million, your beneficiaries would need to distribute about $200,000 annually over 10 years, potentially pushing them into a much higher tax bracket regardless of their current income.

You should also consider the distribution of your assets between taxable, tax-deferred, and tax-free accounts when making this decision.

4. Hidden Taxes Could Reduce the Benefit of Converting

Any Roth conversion will increase your taxable income in the year you do the conversion, even though it doesn’t put cash in your bank account. This can trigger various “hidden taxes” based on calculations like modified adjusted gross income (MAGI), taxable income, or provisional income.

Here are some examples:

IRMAA Surcharge: The Income-Related Monthly Adjustment Amount applies once you’re Medicare eligible. While Medicare Part A is free, Part B has a premium (about $185 for 2025). Part D depends on your chosen drug plan. If your income exceeds certain thresholds, you’ll pay additional surcharges for both Part B and Part D. These surcharges can range from $1,000 to over $6,000 per year per person.

ACA Premium Tax Credits: If you retire before 65 and use the Affordable Care Act for health insurance, you might be eligible for premium tax credits based on your modified adjusted gross income. Roth conversions could reduce these credits.

Net Investment Income Tax: If your MAGI exceeds $250,000 (married filing jointly) or $200,000 (single), there’s an additional 3.8% tax on investment income like dividends, interest, and rental income.

Capital Gains Taxes: If you’re married filing jointly and your taxable income is below $96,700 for 2025, you don’t pay any tax on long-term capital gains. A Roth conversion could push you above this threshold.

Social Security Taxation: As mentioned earlier, between 0% and 85% of your Social Security benefits could be taxable depending on your provisional income. Roth conversions can increase this percentage.

While these hidden taxes aren’t necessarily reasons to avoid Roth conversions entirely, they should factor into your decision about timing and amount.

5. You’re Planning to Donate to Charity During Your Lifetime or at Death

Traditional IRAs are some of the best accounts to donate to charity. If you convert all your tax-deferred assets to Roth, you lose this potential tax benefit.

One powerful strategy is the Qualified Charitable Distribution (QCD). Once you turn 70½, you can donate up to $107,000 (in 2025) directly from your IRA to charity without recognizing an taxable income. What makes this even more powerful is that once you begin taking Required Minimum Distributions (RMDs), you can reduce your RMD dollar-for-dollar up to that cap.

For example, if your RMD is $50,000 and you typically donate $30,000 to charity, you could do a $30,000 QCD directly from your IRA. This would reduce your RMD to $20,000, essentially making that $30,000 completely tax-exempt—even better than a tax deduction.

Similarly, if you’re planning to leave money to charity at death, your traditional IRA is a great asset to use. While your non-spousal beneficiaries (typically children or nieces/nephews) will have to pay taxes as they withdraw from the inherited IRA over the 10-year period, charities don’t pay any taxes on these distributions.

This doesn’t mean you shouldn’t convert at all, but you might consider not converting as much or as aggressively if charitable giving is part of your plan.

6. You’re Planning to Self-Fund for Long-Term Care Costs

Long-term care is one of the most significant risks retirees face today. The uncertainty lies in whether you’ll need care, and if so, for how long—six months or ten years? The costs can be substantial, often exceeding six figures annually.

Some people buy long-term care insurance, while others plan to use their own assets. If you’re in the latter group, there’s an interesting tax angle to consider. While IRA distributions are taxable, there’s a deduction if your medical costs exceed 7.5% of your adjusted gross income. These expenses can be added to your itemized deductions.

If you need long-term care later in life, it’s almost certain your expenses will exceed that 7.5% threshold, given the high costs involved. If you have an IRA you can tap into to pay for care, you might be able to deduct some of those distributions because of the medical expense deduction.

While this deduction may not offset the entire tax on the distribution, it can be significant enough to argue against converting all of your IRA to Roth.

7. You Don’t Have the Cash to Pay the Taxes

The traditional approach to paying for Roth conversion taxes is to use cash on hand from a savings or checking account, or to increase withholding from sources like Social Security or a pension to offset the additional taxes.

If these aren’t options—if you don’t have the cash or need your income from other sources—you may have to use funds from your IRA to pay the tax. If you’re younger than 59½, this isn’t advisable because you’ll face a 10% early withdrawal penalty.

Even if you’re over 59½, using money from your IRA to pay the taxes leaves less money invested that could otherwise grow tax-deferred. This may not be ideal depending on your time horizon and the breakeven point of the Roth conversion.

Your plan should strongly favor Roth conversions for it to make sense to pay the tax out of the IRA. While there are cases where this works (I have a client for whom we’re doing exactly this), if you don’t have the cash and the case for Roth conversion isn’t compelling, you might want to pause or avoid the conversion altogether.

Final Thoughts on Roth Conversion Decisions

Understanding when a Roth conversion makes sense requires careful analysis of your current situation, future expectations, and overall financial goals. While Roth conversions can be powerful tools for retirement planning, they aren’t right for everyone in every situation.

Remember that tax laws and personal circumstances change over time, so regularly reviewing your retirement and tax planning strategy is essential for long-term success.

If you’re approaching retirement and wondering if you should do a Roth Conversion, check out Episode 66 of The Planning for Retirement Podcast. Consider working with a financial advisor who specializes in retirement income planning. They can help you analyze your specific situation and develop a claiming strategy that aligns with your overall financial goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

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This is for general education purposes only and should not be considered as tax, legal or investment advice.