I’m 70 Years Old With $1.2 Million in an IRA. Is It Too Late to Convert to a Roth IRA?

In retirement, it’s not too late to convert your money into a Roth IRA. The IRS will let you convert qualified funds at any time, as long as you pay the associated taxes. It might, however, be too late to get real benefit from that decision. A Roth IRA works best when it has time to grow, and when you can take advantage of tax arbitrage between current (lower) rates and future (higher) ones.

But there’s more to think about. If you want to ask questions about your own personal situation, consider matching with a fiduciary financial advisor.

For example, say that you’re 70 years old with $1.2 million in an IRA. Legally it’s not too late to convert that money into a Roth account. Practically, however, you’d pay nearly $400,000 in conversion taxes in exchange for the benefit of avoiding required minimum distributions (RMDs) and tax-free growth for the future.

What Are the Benefits of a Roth Conversion?

Investors who hold money in a pre-tax portfolio, like a traditional IRA or a 401(k), can make what’s called a Roth conversion. This is when you move assets from your pre-tax portfolio and put it into a Roth IRA. A Roth conversion has no limits, unlike contributions made from earned income. You can convert assets in any amount and as often as you like. Otherwise, at 70 you must still have qualifying earned income through work or a business to make regular contributions, which are capped by an annual limit.

The main advantage of a Roth IRA is the tax-free withdrawals. You pay no taxes on qualified withdrawals from a Roth IRA, both principal and returns. This is as opposed to a tax-deferred portfolio, for which you pay no taxes on the money you contribute but full income taxes on money you withdraw. A Roth IRA also has no RMD requirements, letting you hold investments as long as you like.

This tax status makes a Roth IRA good for estate planning, as your heirs will also be allowed to take the money tax-free. This is as opposed to a tax-deferred account like a traditional IRA on which your heirs would pay income taxes.

Consider discussing how a Roth conversion would impact your retirement and estate planning goals with a financial advisor.

What Are the Drawbacks of Roth Conversions?

The main disadvantage to a Roth conversion is the immediate tax liability that’s created. You pay full income taxes on money you convert into Roth assets from a pre-tax account. For example, say that you convert $1.2 million from your traditional IRA to a Roth IRA. You would include that $1.2 million in your taxable income for that year, and would need available cash to pay the resulting taxes. Converting this amount will likely put you into the highest marginal tax bracket (37%).

You can manage these taxes by converting money in smaller, staggered amounts to stay within lower tax brackets, but you cannot avoid them altogether. 

It’s also important to consider how and when you’ll need to withdraw this money in retirement. Each Roth conversion has its own five-year holding period, but this rule generally only affects withdrawals made before age 59 ½. If you withdraw converted funds within five years and are under 59 ½, you may owe a 10% penalty.

However, once you reach age 59 ½, you can typically withdraw converted amounts without additional taxes or penalties. Just keep in mind that if you then leave the funds in the Roth account for additional time, the five-year rule will apply to any earnings the account generates.

A financial advisor can help you plan for accounts with commingled funds, which is when some money is accessible but some remains locked up.

Roth vs. Traditional IRA: The Rule Of Thumb

It’s easy to think that a Roth IRA is automatically the better choice. After all, the Roth portfolio enjoys tax-free growth and withdrawals. So if you put in $1 and it grows to $10, with a Roth IRA you only pay taxes on the $1. With a traditional IRA you pay taxes on all $10.

The problem is that the tax you pay on contributions and conversions is all money that you could have invested. So, for example, say that you roll $1.2 million from your traditional IRA into your Roth IRA. If done in one lump sum, that would cost about $393,000 in taxes in 2026. 

So the rule of thumb is this:

A Roth investment may be preferable if you currently pay lower taxes than you expect to pay at withdrawal, so that you exchange the current lower rate for the higher future one (tax arbitrage). It is also a better idea the longer your money has to grow in this account tax-free.

A pre-tax investment is a good idea if you currently pay higher taxes than you expect to pay at withdrawal, so that you exchange your current higher rate for a future lower one (capital maximization). 

A financial advisor can help you do a personal evaluation of the pros and cons in your situation.

Should You Convert Your Savings?

Take our example above. If you convert this money in one lump sum you might have about $1.18 million in your Roth portfolio at age 75, assuming you pay the tax bill with a portion of the converted funds and then grow the remaining money at 8% per year. At a 4% withdrawal rate, that’s about $47,400 in after-tax income. If you don’t convert this money, you might have about $1.51 million in your traditional IRA by the time RMDs begin at age 73.

Now, this is a clumsy example. You would most likely convert this money in stages to avoid the highest tax brackets, increasing the value of your Roth portfolio. But the point is that you don’t have much room for benefit here. Unless you expect your income to significantly decline later in retirement, you don’t have a future tax gain to offset the current bill you would pay. 

And that’s to say nothing of the fact that you would lock up your retirement portfolio for five years… right at the time you need it most. 

Why a Roth Conversion at Age 70 Could Make Sense

A Roth conversion might make some sense if this is a supplemental retirement account. Then, a few edge cases might make this useful for money management. For example, converting your money to a Roth portfolio would let you take out big, one-time withdrawals (like for a new car or a big trip) without triggering higher taxes that year.

It may also help manage how your income interacts with Social Security. Up to 85% of Social Security benefits can be taxable based on what’s known as your “provisional income,” which includes withdrawals from traditional retirement accounts. By shifting some assets into a Roth, you may be able to fund future spending without increasing your taxable income, which can help limit how much of your Social Security benefits are subject to tax. That said, the conversion itself could temporarily increase your income and make more of your benefits taxable in the year you convert.

It can also be useful for estate planning, if you would like to leave your heirs a valuable, tax-free asset. But these cases are relatively niche, and still might not offset the value lost to taxes.

If you have questions about your retirement income and taxes, get matched with a financial advisor today.

Bottom Line

At age 70, it isn’t too late to convert savings into a Roth IRA. The IRS allows conversions at any time, provided you can pay the associated taxes. Whether it makes sense, however, depends on your broader financial picture, including your current tax bracket, expected future income, time horizon and estate planning goals.

In many cases, the upfront tax cost and shorter growth window can limit the potential benefits, especially if your tax rate is unlikely to change meaningfully. But there are situations where a conversion can still be useful, such as managing taxable income, reducing future required minimum distributions (RMDs) or leaving tax-free assets to heirs.

Roth IRA Management Tips

• Now let’s look at this from another point of view. Say that you already have a Roth IRA in place and you’re winding down with work. What should you do with your Roth IRA once you retire? 
• A financial advisor can help you build a comprehensive retirement plan. 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.

Photo credit: ©iStock.com/Inside Creative House