I'm 58 With $680k in My 401(k). Should I Switch to Roth Contributions Now?

Core Insights - The article discusses the benefits and considerations of converting to a Roth IRA, particularly for individuals nearing retirement age, highlighting the tax implications and growth potential of such a strategy [1][5][19] Contribution Methods - There are two primary methods to fund a Roth IRA: conversions from pre-tax accounts like 401(k)s or traditional IRAs, and contributions from earned income. The contribution limit for 2025 is $7,000 annually, or $8,000 for those aged 50 or older [3][4] Tax Implications - Converting funds from a 401(k) to a Roth IRA increases taxable income for the year of conversion. For example, a conversion of $15,000 raises taxable income from $50,000 to $65,000, resulting in an increase of approximately $3,300 in federal taxes [1][8][22] Growth Potential - A $15,000 investment could grow significantly over 40 years, potentially reaching $224,000 at a 7% return or $653,000 at a 10% return. This illustrates the long-term benefits of paying taxes upfront on a smaller balance [8][10] Retirement Planning - For individuals aged 58 with substantial 401(k) balances, the decision to pivot to Roth contributions involves balancing current tax payments against future tax-free withdrawals. This strategy can provide predictable income and may reduce lifetime tax costs [15][19][25] Estate Planning Benefits - Roth IRAs offer advantages for estate planning, as they do not require minimum distributions during the owner's lifetime, allowing funds to grow longer. Beneficiaries can withdraw inherited Roth funds tax-free within 10 years, making it a valuable tool for wealth transfer [14][20] Income Eligibility - In 2025, income limits for Roth IRA contributions phase out for single filers earning between $150,000 and $165,000, and for joint filers between $236,000 and $246,000. However, conversions are not subject to these limits but incur immediate tax liabilities [22][23] Strategic Considerations - Late-life Roth contributions may not replace the primary role of a 401(k) but can create a tax-free reserve. The decision to convert should consider tax brackets, other income sources, and legacy planning goals [23][25]