10 Reasons You Should NOT Do a Roth Conversion

Core Insights - Roth conversions involve rolling over retirement funds from pretax accounts to after-tax Roth IRAs, allowing tax-free withdrawals in retirement after paying capital gains taxes during the rollover [1] Group 1: Timing Considerations - Roth conversions may not be beneficial if an individual expects their income to drop in retirement, as paying taxes at a high rate now could undermine the strategy [3] - The optimal timing for Roth conversions is during low-income years, particularly after retirement but before required minimum distributions or Social Security benefits begin [3][4] - The period between retirement and the start of required minimum withdrawals or Social Security is ideal for conversions, as it allows for better control over taxable income and minimizes tax liabilities [7] Group 2: Tax Implications - Tax laws are subject to change, and while Roth IRAs can hedge against future tax increases, conversions are taxed under current laws, which may strain cash flow or affect other financial plans [5] - Performing a Roth conversion while in a peak tax bracket can lead to higher immediate tax payments than necessary, making it advisable to wait until after retirement when income typically decreases [6][7]