At 60 With $1.2M Saved, Does Converting $120K Annually From Traditional to Roth IRA Make Sense?

Mark Henricks

Mon, Mar 10, 2025, 7:40 AM 6 min read

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If you’re 60 years aged with $1.2 cardinal saved for status successful a accepted IRA, you whitethorn beryllium starting to deliberation astir required minimum distributions (RMDs) and the hefty yearly taxation measure they tin make erstwhile you crook 73. Converting a information of your IRA to a Roth IRA each twelvemonth tin assistance you trim oregon debar RMDs and instrumentality power of your taxation measure – but besides comes astatine a cost. Discuss your Roth IRA conversion questions with a fiscal advisor to find if this strategy aligns with your broader fiscal plan.

Once you crook 73, the IRS requires that you commencement taking yearly distributions called required minimum distributions (RMDs) from accepted IRAs, 401(k)s and akin tax-deferred accounts. RMDs are calculated by dividing your relationship equilibrium by your beingness expectancy factor, a worth that is acceptable by the IRS based connected your age.

RMD withdrawals are treated arsenic mean income. With a ample IRA balance, the size of the mandatory RMDs could easy propulsion idiosyncratic into a higher taxation bracket and effect successful a higher taxation bill. Remember, a fiscal advisor tin beryllium a invaluable assets erstwhile it comes to readying for RMDs.

Roth IRAs, dissimilar accepted IRAs and 401(k)s, aren’t taxable to RMD rules. So by converting your IRA to a Roth, you could debar having to wage other income taxes from mandatory IRA withdrawals successful retirement. The drawback is that you person to wage income taxes connected the magnitude you person astatine your mean income complaint erstwhile you person it. This tin pb to a monolithic taxation measure if you were to person a $1.2 cardinal IRA to a Roth each astatine once.

Instead, gradually converting your accepted IRA to a Roth IRA allows you to power erstwhile you wage taxes. Rather than unspecified mandatory RMD withdrawals, you take erstwhile to instrumentality taxable Roth conversions. Roth withdrawals successful status are past tax-free, provided you hold 5 years to retreat those assets.

Keep successful caput that the five-year play applies to each conversion. If you were to person a information of your IRA in 2025, 2026 and 2027, you’d person to hold until 2030, 2031 and 2032, respectively, to retreat each radical of funds tax-free.

If you request further assistance navigating the rules surrounding Roth conversions, usage this instrumentality to lucifer with a fiscal advisor.

Assuming your investments turn astatine 5% each twelvemonth for 13 years, your $1.2 cardinal IRA could beryllium worthy astir $2.3 cardinal by the clip you scope property 73. By that time, your archetypal RMD would beryllium astir $87,000 based connected the IRS beingness expectancy factor. Assuming you’re collecting $80,000 annually successful taxable income from pensions and Social Security, adding an other $87,000 would propulsion you from the 22% bracket into the 24% bracket. (This assumes that the existent taxation brackets stay successful spot aft 2025 erstwhile cardinal provisions of the Tax Cut and Jobs Act sunset.)