Required minimum distributions, or RMDs, are a problem for some retirees. If that’s your situation, a Roth conversion may be able to help. The advantage to switching your money from a pre-tax portfolio, like a traditional IRA, to a post-tax Roth IRA is an end to RMD concerns. Since you’ve already paid taxes on the money in a Roth account, the IRS does not require minimum withdrawals. The disadvantage is that you have to pay taxes up front, when you convert the funds. Depending on your tax situation, in t ...

Core Insights - Over 50% of current retirees did not account for taxes in their retirement planning, and nearly 60% wish they had prepared better for retirement taxes [2] Tax Considerations in Retirement - Taxes on retirement account withdrawals depend on the type of account; Roth account withdrawals are generally tax-free, while 401(k) and traditional IRA withdrawals are subject to income taxes [4] - Some states have exceptions for retirement income or do not tax income at all, so it is important to check state tax codes for potential exemptions [5] - Social Security benefits may also be subject to state and federal income taxes; 41 states do not tax these benefits, but federal taxes depend on provisional income thresholds [6][7] Planning for Retirement Taxes - Many retirees regret not planning for taxes on retirement income, highlighting the importance of understanding potential tax liabilities [8] - Proper planning can alleviate confusion regarding taxes, allowing retirees to enter retirement more prepared [9]

Core Insights - The conventional strategy of deferring tax-deferred retirement accounts until the end of retirement may need reevaluation, as minimizing overall taxes during retirement could be more beneficial [2][5] - Financial advisors suggest using tax-deferred accounts for living expenses or converting portions to Roth IRAs before claiming Social Security to take advantage of lower marginal tax rates [3][8] Tax Considerations in Retirement - Collecting Social Security benefits while withdrawing from tax-deferred accounts can lead to taxation on those benefits, with single filers earning between $25,000 and $34,000 taxed on 50% of benefits, and those over $34,000 taxed on up to 85% [5][6] - The income thresholds for taxation on Social Security benefits have not been adjusted for inflation or wage growth since their introduction, leading to more retirees being affected by what is termed the "tax torpedo" [7] Strategies to Minimize Taxes - One effective strategy to avoid the "tax torpedo" is to withdraw from tax-deferred accounts before claiming Social Security benefits [8] - Compounded earnings in a taxable 401(k) or traditional IRA yield less after taxes compared to tax-free Roth IRA earnings, which do not count towards combined income [9]