“A Roth conversion sounds like a pain in the neck. Is it really necessary to consider?”
As a flat-fee, advice-only financial advisor in Florida, I often get this exact question. And it’s a fair one. Roth conversions aren’t the most exciting thing to think about when planning for retirement, but here’s the deal: whether or not a Roth conversion is worth it can have a major impact on your long-term taxes, your Social Security benefits, and even your Medicare premiums.
Before we dive in, a quick note about how we work:
We earn one flat fee for financial planning no matter what assets you hold, whether or not you trade, or if you buy new investments. That means we stay focused on your whole financial picture instead of trying to sell products or push “the next hot stock.”
We think that’s a fairer way to do business. Agree?
Now, onto the feature - our Take on Roth conversions.
Why Roth Conversions Matter for Orlando Retirees
Most people save diligently into retirement accounts but don’t think much about the tax consequences until retirement. The mindset is often:
“Taxes? Meh. I won’t touch this money for 10+ years, I’ll figure it out later.”
The problem? Waiting until later could mean missing out on strategies that save you thousands in taxes today and throughout retirement.
Here’s the big difference:
- Traditional IRA: Contributions grow tax-deferred, but withdrawals are taxed as ordinary income. Required minimum distributions (RMDs) start at age 73 or 75.
- Roth IRA: Contributions are made with after-tax money, withdrawals are tax-free, and there are no RMDs.
- Roth Conversion: Moving money from a Traditional IRA into a Roth IRA now (and paying the tax today) can help you avoid higher taxes in retirement.
It’s About More Than Retirement Income
Thinking about a Roth conversion only in terms of “paying taxes now vs. later” is short-sighted. It also affects:
- Medicare premiums (IRMAA): Roth distributions don’t count toward your income for Medicare, but the actual conversion does in the year you make it. That could temporarily push premiums higher if you’re over age 65.
- Social Security taxation: Up to 85% of your Social Security benefits can be taxable depending on your combined income. Roth withdrawals don’t add to that calculation, but Roth conversions do in the year you make them.
This is why timing matters. Working with a financial advisor and CPA can help you structure conversions to avoid surprises.
Questions to Ask Before Doing a Roth Conversion
- Should I take the tax hit now at my current tax rate, or do I expect my rate to be lower in retirement?
- How would my Social Security benefits be taxed if I don’t convert?
- If I’m close to Medicare age, would a large conversion push me into higher IRMAA brackets?
- What’s the right pace of conversions - small annual moves or a big one-time transfer?
Retirement Planning Takeaway
Roth conversions can feel like a hassle, but for many Orlando retirees, they’re worth exploring. They provide flexibility, long-term tax savings, and can help reduce the bite Uncle Sam takes out of your retirement income.
Remember though - it’s not a one-size-fits-all answer. The “right” decision depends on your tax bracket, retirement timeline, and personal goals.
Let’s Talk About Your Situation
If you live in Florida and are wondering whether a Roth conversion makes sense for you, I’d be happy to walk through the numbers with you.
Remember: none of this should be taken as tax or investment advice - I’m not a CPA, and your situation is unique. But if you’d like a personalized analysis, schedule a call with an Orlando financial advisor who puts your goals first.
Here’s to smarter retirement planning!
