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If you’re 65 years old and collecting Social Security, you may wonder if it’s too late to convert your $750,000 traditional IRA into a Roth IRA. The short answer is no. There are no legal restrictions on Roth conversions based on age or income. Practically, however, the decision involves carefully weighing tax implications, healthcare costs, estate planning and more. Spreading conversions over multiple years often makes the most financial sense for larger IRAs. Guidance from a financial advisor can help you weigh the costs of a Roth conversion in your circumstance.
Roth Conversion Basics
A Roth IRA conversion involves moving funds from a traditional, pre-tax IRA into an after-tax Roth IRA account. You pay income tax on the money that gets converted now, but future withdrawals in retirement come out tax-free.
Plus, traditional IRAs are subject to required minimum distributions (RMDs) starting at age 73. This can lead to higher taxes in retirement as RMD income, which is treated as ordinary taxable income, can push retirees into higher tax brackets. RMD rules do not apply to Roth IRAs during the original owner’s lifetime. Roth 401(k)s, however, are subject to RMDs unless rolled into a Roth IRA. Qualified withdrawals from a Roth IRA are tax-free, but earnings may be taxable if withdrawn before satisfying the five-year rule and age requirements.
If you need additional help navigating the rules surrounding Roth IRAs, consider speaking with a financial advisor.
Why Timing Your Roth Conversion Matters
The sooner you convert funds from your traditional pre-tax IRA to a Roth account, the more years of tax-free growth you’ll enjoy in your Roth account. And you’ll be able to withdraw those Roth funds without owing any taxes.
But you will have to pay taxes on the conversion, which is no small consideration when it comes to timing. Converting a large IRA can require you to pay the top marginal tax rate of 37% on most or even all of the entire conversion amount, depending on your other income, deductions and additional factors.
If you convert it gradually, however, you can spread the income bump out over several years and avoid subjecting it to the top marginal tax rate. This can help reduce the tax owed each year and overall.
Traditional and Roth accounts offer different tax benefits, but both play a role in retirement income. Run your numbers through SmartAsset’s retirement calculator to see how they might work together.
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It’s also worth thinking about when you expect to use the converted funds. Each Roth conversion has its own five-year clock. If you are under age 59 ½, withdrawing converted amounts within five years can trigger a 10% penalty. However, at age 65, the early withdrawal penalty would not apply, though the five-year rule still determines whether earnings qualify for tax-free treatment.
If you complete multiple partial conversions over several years, each conversion amount carries its own separate five-year period, which can affect the timing and tax treatment of future withdrawals.
Meeting with a financial advisor can provide clarity on complex moves like Roth conversions.
Converting a $750,000 IRA
A major concern in converting a $750,000 IRA balance at once would be the significant tax bill that would accompany such a transaction. Completing a Roth conversion of that size would push the person into the 37% marginal tax bracket.
If you’re a single filer and your Social Security income isn’t high enough to be taxed, adding $750,000 to your current income could trigger nearly $228,000 in extra taxes, using the 2026 tax brackets. Going slowly with $75,000 converted per year over 10 years reduces the tax hit each year by keeping your taxable income in the 22% bracket.
Here’s how those scenarios might play out, assuming you are a single filer and you take the standard deduction (other deductions are not considered here):
Scenario 1: Converting $750,000 All at Once
- Size of Roth conversion: $750,000
- Tax bracket: 37%
- Estimated Federal income tax owed on conversion: $227,500
This option leaves you with a massive tax bill but around $522,500 in your new Roth IRA, which you’ll eventually be able to withdraw tax-free.
Scenario 2: Annual $75,000 Conversions Over 10 Years
- Size of Roth conversion: $75,000 (x10)
- Tax bracket: 22%
- Estimated Federal income tax owed on conversion: $76,700 over 10 years
Keep in mind that funds left in your IRA will continue to grow while you’re executing these annual conversions, so the IRA likely won’t be empty by the time you have to start taking RMDs. However, the RMDs you’ll have to take by then will be much smaller so won’t incur nearly as much taxation compared to leaving the money in a traditional IRA.
A third option is to leave the money unconverted in your IRA and start taking RMDs once you turn 73, paying taxes on them as you go. However, this could leave you paying higher taxes in retirement until your death. But if you need more help taking stock of your different options, this free matching tool can pair you with a fiduciary advisor.
Making the Call
You may not find that one course of action is clearly superior. Factors to consider when deciding if and how much Roth conversion makes sense:
- Compare current vs. future income tax rates
- Account for RMDs and estate plans
- Weigh healthcare and other senior costs
- Assess tax impact on heirs
- Model multi-year scenarios
Strategic partial Roth conversions tailored to your situation may provide the most tax advantages for people with large IRA balances.
One major limitation to Roth conversions is that they cannot be reversed. If tax rates decline later or you need converted funds sooner, you could regret having locked in taxes now at a higher rate. Inheritance plans may also change. Do a thorough multi-year analysis before committing to convert.
Run your own Roth conversion scenarios first or enlist the help of a financial advisor to help you make these important calculations.
Frequently Asked Questions (FAQ)
When might a Roth conversion make sense?
A Roth conversion may be worth considering if you expect to be in a higher tax bracket in the future, want to reduce future required minimum distributions (RMDs), or are seeking greater tax diversification in retirement. It can also be useful in years when your taxable income is temporarily lower than usual.
Do Roth conversions help reduce required minimum distributions?
Yes, but indirectly. Converting pre-tax retirement funds into a Roth IRA reduces the balance in accounts that are subject to RMDs. Since Roth IRAs are not subject to lifetime RMDs for the original owner, future mandatory withdrawals may be lower. However, you must take any RMD for the current year before completing a conversion, and that RMD amount cannot be converted.
How do Roth conversions affect heirs?
Roth IRAs can offer tax advantages for beneficiaries, as qualified withdrawals are generally tax-free. However, most non-spouse beneficiaries must still distribute the inherited Roth IRA within 10 years under current federal rules. Even so, eliminating future income tax on withdrawals can make Roth accounts attractive in estate planning.
Bottom Line
At 65 or any age, spreading Roth conversions over multiple years may offer flexibility while balancing current tax costs against future tax considerations. This may balance immediate tax costs against future tax savings for you and your heirs. As with most money moves in retirement, prudently assessing your multi-year tax picture first is key.
Retirement Planning Tips
- Instead of guessing if converting your IRA makes sense, talk to a financial advisor who can crunch the numbers. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Direct Roth IRA contributions are subject to IRS income limits that adjust periodically. If your income exceeds the threshold for your filing status, you may not qualify to contribute directly. Some higher earners consider a “backdoor Roth” strategy, which involves contributing to a traditional IRA and then converting those funds to a Roth IRA, subject to applicable tax rules.
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