Should I Convert 25% of My 401(k) Over 4 Years to Avoid RMDs and Taxes Before Retiring?

Core Insights - Transferring retirement savings from a 401(k) to a Roth IRA can reduce or avoid required minimum distributions (RMDs) and income taxes in retirement, providing flexibility in tax planning [1][4] - Roth accounts are not subject to RMD rules, which can help retirees manage their tax liabilities and financial situations better [4][5] - Converting a significant portion of a 401(k) can lead to a substantial immediate tax bill, potentially pushing individuals into a higher marginal tax bracket [2][6] Group 1: Roth Conversion Benefits - Roth conversions allow for tax-free withdrawals for heirs, making them an attractive option for estate planning [1] - By eliminating RMDs, retirees can potentially pay fewer income taxes and have more disposable income for lifestyle expenses [5] Group 2: Tax Implications of Roth Conversions - Amounts converted from a tax-deferred account to a Roth IRA are considered taxable income, which can significantly impact the individual's tax bracket [6] - For instance, converting 25% of a $1 million 401(k) could result in an additional $250,000 in taxable income, leading to a tax bill of approximately $53,014 for a single filer in the 32% marginal tax bracket for the 2024 tax year [7]