The IRS allows workers to put aside pre-tax earnings in traditional Individual Retirement Accounts, 401(k) and similar workplace accounts, and for all the money to grow – tax-deferred – to give you cash for retirement. But the national tax collector only waits so long to collect, and once you turn 73, the law forces retirees to take required minimum distributions and start paying tax. These distributions – RMDs, for short – often aren’t a problem for anyone already taking withdrawals to cover their livi ...

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. Legally, it’s never too late to make a Roth conversion. The IRS will let you move qualifying funds at any time as long as you can pay the resulting tax bill. For those in or near retirement, the bigger question is whether it’s a wise call to make a Roth conversion. On the one hand, a tax-free portfolio gives you significantly more control over your finances. On the other hand, you will have little opportu ...

Core Insights - Converting a 401(k) into a Roth IRA offers tax-free qualified withdrawals and exemption from required minimum distributions (RMDs), providing flexibility and potential tax savings in retirement [1][5] Group 1: Roth Conversion Benefits - Roth conversions allow for tax-free withdrawals and can help avoid RMDs, which start at age 73 and can increase tax liabilities due to ordinary income treatment [5][6] - Converting gradually over a decade can mitigate tax impacts compared to a lump-sum conversion, which could push individuals into the highest tax bracket [2][8] Group 2: RMDs and Tax Implications - RMDs can significantly increase taxable income, potentially raising the marginal tax rate; for example, a $1.3 million 401(k) could lead to an initial RMD of over $104,000, increasing the tax rate from 12% to 24% for a single filer with additional income [6][5] - The RMD age will shift from 73 to 75 starting in 2032, affecting withdrawal strategies for retirees [6] Group 3: Conversion Strategies - A lump-sum conversion of $1.3 million would incur over $430,000 in taxes, while annual conversions of $130,000 could significantly lower the tax burden [8] - Consulting a financial advisor is recommended for personalized strategies regarding Roth conversions and RMD planning [3][7]