Roth conversions often pay off, but don’t think it’s an obvious choice.
IRS increases 401(k) contribution limits for 2026
The IRS will increase 401(k) and catch-up contribution limits for 2026, allowing workers to save up to $32,500 for retirement.
There are major drawbacks to saving for retirement in a traditional IRA or 401(k). These accounts ultimately force retirees to take required minimum distributions (RMDs).
If you don’t like the idea, you may be considering converting to a Roth. A Roth conversion involves moving funds from a traditional retirement account to a Roth IRA. From that point on, your money grows tax-free, you don’t have to pay taxes on withdrawals, and you don’t have to take RMDs.
Roth conversions can be a smart strategy for many people. But there’s no guarantee that it will make sense to you. Here are three signs that they might be the wrong thing to do.
1. I expect to be in a lower tax bracket after retirement.
One of the biggest reasons to convert to a Roth is the ability to enjoy tax-free withdrawals when your income and taxes may be higher. However, if you expect your income and taxes to be lower in retirement, a Roth conversion doesn’t make sense.
The goal is to minimize the amount of taxes you pay on your savings. If converting to a Roth doesn’t make sense for you, it’s not very good.
2. Converting can result in a huge tax bill
When you make a Roth conversion, it is a taxable event. All funds moved from a traditional retirement account to a Roth IRA are taxed in the same year.
But if you don’t have the opportunity to make a Roth conversion when your income is low, you could end up paying more taxes on that money because the conversion is taxed at a higher rate. So, for example, if you’re working full time just before reaching RMD age, you may not have a good opportunity to convert.
3. I want to do charity work after I retire.
When you retire, you may have enough income and no need to save to survive. For example, a generous pension combined with Social Security may be able to cover your entire bill.
In such situations, you may decide to donate your retirement savings to charity. If so, the Roth conversion isn’t worth it.
If you have funds in a traditional IRA, you can make a qualified charitable contribution and transfer money directly from your savings to a registered charity. These contributions will not tax you and will satisfy your RMD.
While Roth conversions can save retirees a lot of money in the long run, it’s not necessarily a good strategy for everyone. Before making a Roth conversion, consider your future tax bracket, evaluate the tax implications, and decide if charitable giving is a priority. You may find that sticking with traditional retirement accounts makes the most sense.
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