Personal Finance
"Should I Convert an IRA to a Roth After Age 60?"
Here's a primer on the potential benefits and drawbacks.
Have you considered converting a pre-tax retirement account into a Roth account as you approach retirement?
Converting pre-tax retirement accounts such as IRAs to after-tax Roth IRAs could allow you to keep growing funds tax-free and then make withdrawals in retirement without paying taxes.
Is this the right retirement savings strategy for you? To find out, it could be a good idea to speak with a financial advisor.
Consulting a fiduciary financial advisor can be a great first step to weighing a Roth conversion, the potential tax repercussions, and how it could fit into your overall retirement plan.
Research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.¹
A 2023 Northwestern Mutual study found that 66% of U.S. adults admit their financial planning needs improvement. However, only 37% of Americans work with a financial advisor.²
SmartAsset's no-cost tool can help you find and compare vetted fiduciary advisors. How does the free tool work? It's easy:
- Short questionnaire takes just a few minutes
- Match with vetted fiduciary financial advisors
- Compare your matches and choose the one you feel is best for you
The fiduciary financial advisors you match with serve your area and are legally bound to work in your best interest. You may even be able to instantly connect with an advisor for a free introductory call. Advisors are vetted through our proprietary due diligence process.
Roth IRA Conversion Basics
The difference between a Roth IRA and other types of IRAs is that the Roth account is funded with after-tax dollars. That means you pay taxes on funds before contributing them to the Roth, and you can’t deduct contributions from your taxable income.
However, the money in the Roth account grows tax-free and you can withdraw funds after you retire without paying taxes.
You can convert funds in pre-tax IRA accounts to a Roth IRA. This includes traditional IRAs, SEP IRAs and Simple IRAs.
When you convert pre-tax money in a regular IRA to a Roth IRA, you have to pay taxes on it at your current rate. The conversion amount is treated as regular income, which may bump you into a higher tax bracket and cause a high tax bill for the conversion year.
Is a Roth IRA Conversion Worth It?
Despite the tax bill, a Roth IRA conversion can be worth it for a couple of reasons.
First, it can get around the income caps that limit Roth conversions for higher-income taxpayers. Most taxpayers can contribute up to $6,500 ($7,500 if you're age 50 or older), according to the IRS. But contribution limits are lower for higher-income taxpayers and, after a point, no Roth contributions are allowed at all.
There are no limits on conversions, though. A taxpayer with a pre-tax IRA can convert any amount of funds in a year to a Roth IRA.
Roth IRAs also are exempt from required minimum distributions (RMDs). These mandatory withdrawals from retirement accounts begin at age 73 and can create a tax burden on affluent retirees. But Roth owners don’t have to take RMDs for as long as they live, making Roth IRAs particularly useful for leaving inheritances.
Again, it’s important to consider your unique circumstances and how a Roth conversion could affect your retirement, which is why it could be important to speak with a fiduciary financial advisor before moving forward. Click here to get matched with vetted fiduciary financial advisors who serve your area in just a few minutes.
Potential Benefits of Conversion After 60
Taxpayers in their 60s may be earning less than in their peak years, so the income tax bite of a Roth IRA conversion could potentially be smaller.
For those with substantial retirement assets and who anticipate receiving pension benefits in addition to Social Security, the RMDs of a regular IRA could also potentially put them in a higher tax bracket post-retirement.
So converting to a Roth IRA now could, at the cost of paying some taxes today, potentially reduce the post-retirement tax burden.
Potential Drawbacks to Conversion After 60
Paying a large chunk of taxes today can be considered a big disincentive for a Roth conversion.
Another potential drawback is Roth accounts have to be open for at least five years to avoid paying taxes on earnings you withdraw. However, this doesn’t apply to withdrawing your original contributions. After age 59.5, withdrawals aren’t subject to a 10% penalty that can be levied on early withdrawals. But the income taxes are still due, even for those over 60.
Roth IRA conversions may not be ideal for all savers. For instance, many retirees could have lower incomes than when they were working. For them, it might be better to use a regular IRA and pay taxes when withdrawing funds. Similarly, Roth IRA conversions may not make much sense if a taxpayer intends to leave assets in a regular IRA to a charity.
Finally, the process of converting a regular IRA to a Roth IRA can’t be undone. A taxpayer who is not certain post-retirement income taxes will be lower than they are today might want to think twice about a conversion and speak with a financial advisor.
What to Consider Before a Roth Conversion
Deciding whether or not to convert regular IRA assets to a Roth IRA calls for careful evaluation of your financial and tax situation. That’s where a financial advisor can be invaluable.
But how do you find a vetted fiduciary financial advisor, obligated to work in your best interest?
This is the biggest hurdle for many. With thousands of daily Google searches for "Fiduciary financial advisors near me," "best fiduciary financial advisor," and "financial investment advisors near me," the hunt for a vetted fiduciary advisor can feel like a wild goose chase.
But it doesn't have to be. And thankfully, it really isn't.
SmartAsset's free matching quiz links Americans with vetted fiduciary financial advisors who serve their area so they can evaluate and choose the one who they feel fits their needs.
SmartAsset has matched thousands of people with financial advisors. Advisors are vetted through our proprietary due diligence process. We only match with fiduciaries, so all of your financial advisor matches are legally committed to acting in your best interest.
Our advisor matching service is at no cost to you and there is no obligation to work with any of your advisor matches. You're in control.
This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). Past performance is not a guarantee of future results. There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.
SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.
SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset receives compensation from Advisers for our services. SmartAsset does not review the ongoing performance of any Adviser, participate in the management of any user’s account by an Adviser or provide advice regarding specific investments.
We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.
Sources:
1. "Journal of Retirement Study Winter" (2020). The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in the Journal of Retirement study.
2. “Planning and Progress”, Northwestern Mutual (2023)
