I'm 65 With $950k in an IRA. Is It Worth It to Convert $150k per Year to a Roth IRA to Avoid RMDs and Retirement Taxes?

Core Insights - The article discusses the implications of converting a traditional IRA to a Roth IRA, highlighting the tax consequences and potential benefits of such a conversion [2][3][4] Group 1: Roth IRA Conversion Mechanics - A Roth conversion involves transferring funds from a pre-tax retirement account to a Roth IRA, with no limit on the amount that can be converted [4] - The converted amount is taxable in the year of transfer, which can significantly increase the individual's taxable income and federal tax bill [2][8] - Once funds are in a Roth IRA, they grow tax-free, and qualified withdrawals in retirement are exempt from federal income tax [3][5] Group 2: Tax Implications and Strategies - Converting a large amount can lead to a substantial upfront tax cost, prompting some investors to stagger conversions over multiple years to manage tax impacts [1][19] - For example, converting $950,000 could increase taxable income to $1,025,000, resulting in a total tax of $335,207, with an additional tax from conversion of $326,866 [9][11] - Staggered conversions can help reduce the tax burden by spreading the income across several years, but they add complexity to financial planning [19][20] Group 3: Financial Planning Considerations - The decision to convert should consider individual retirement goals, current and future income, and the timing of withdrawals [21][26] - For individuals aged 65, a Roth conversion may be beneficial for estate planning and avoiding required minimum distributions (RMDs), but may not be ideal if funds are needed soon [34][36] - The article emphasizes the trade-off between paying taxes upfront versus deferring them, which can significantly impact long-term retirement income [23][24]