‍Roth Conversions: 6 Situations Where “Tax-Free Later” Isn’t Worth the Price Today

A Roth conversion can feel like the ultimate power move: pay taxes once, then watch every future dollar grow and come out tax-free. For many retirees it is a cornerstone of smart planning—but not always.

Before you shift a chunk of your traditional IRA or 401(k) into a Roth, weigh these six stumbling blocks. In the wrong circumstances a conversion can shrink your nest egg, raise your Medicare premiums, or needlessly divert money from heirs and charities.

1. The sticker shock (and stress) of the tax bill

Moving $300,000 to a Roth could trigger a six-figure payment due next April.
Even when the math says you’ll win in twenty years, writing a cheque for tens (or hundreds) of thousands today can wreck your sleep. Peace of mind matters as much as spreadsheets; if the psychological hit is bigger than the tax benefit, pause.

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2. Paying taxes from the IRA instead of with outside cash

Every dollar withheld for taxes is a dollar that doesn’t make it into the Roth to compound tax-free. Convert $100,000 and use 24 percent withholding from the same account? Only $76,000 lands in the Roth—possibly costing hundreds of thousands in future growth.

3. A charitable legacy is on your horizon

Qualified charities can inherit traditional IRAs tax-free. Converting the balance first means you volunteer to pay a bill the charity never would. If gifts to charity (or annual Qualified Charitable Distributions) are part of your plan, leave those assets pre-tax.

4. You’ll soon be in a lower bracket—or a no-tax state

Many retirees enjoy a sweet spot between their last paycheck and the first Social-Security / RMD year. Lower ordinary income (or a move from a high-tax state like California to a no-tax state such as Florida) often makes waiting the smarter call.

5. There isn’t enough time for growth to offset the cost

Roth conversions are a long game. If your health suggests a shorter life expectancy—or your heirs will be in lower brackets than you are—keeping money in its traditional wrapper may leave the family with more after-tax wealth.

6. Hidden collateral damage: IRMAA and ACA subsidies

• Higher income from a large conversion can push you into pricier Medicare Part B & D brackets (IRMAA).

• If you’re under 65, the same jump in modified AGI can eliminate Affordable Care Act premium subsidies.

Either surprise can wipe out the projected benefit of going Roth.

Make the strategy fit your life— not the other way around

A successful conversion plan often blends timing (filling up low brackets), cash-flow planning (using non-retirement dollars for the tax), and coordination with Social Security, charitable giving, and RMD strategy. Done well the payoff is decades of tax-free growth; done poorly it’s an expensive detour.

Thinking about a conversion? Stress-test the idea before you pull the trigger:

1. Project your future brackets—including RMDs and Social Security.

2. Model IRMAA, state-tax moves, and healthcare subsidies.

3. Consider whether heirs or charities would be better off receiving pre-tax assets.

If you’re unsure, work with a planner who runs these numbers every day— or at least crunch them yourself before the IRS sends you the bill.

See you in the next post—and even sooner in your inbox if you take the quiz linked HERE. Until then, keep thinking retirement.

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