You want to pay as little as possible in taxes, but when it comes to retirement savings, there’s a trade-off you have to weigh. Using tax-deferred accounts, like traditional IRAs and 401(k)s, lowers your tax bill today, but it increases your future tax burden.
You can mitigate this by doing a Roth IRA conversion now. This changes some of your tax-deferred savings into Roth savings, which allow for tax-free withdrawals in retirement. The move will increase your tax bill this year, but you may want to do it anyway if any of the three things appeal to you.
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1. You’ll reduce your retirement tax bill
You’ll pay taxes on the converted funds this year, but after that, your money grows tax-free. This gives you greater control over your retirement tax bill. If you have a mix of tax-deferred and Roth savings and you notice you’re close to jumping up to the next tax bracket, you can rely more upon your Roth savings to avoid this.
This is one way to reduce some of the uncertainty about retirement. You may not know what future tax brackets will look like. But Roth savings give you a way to get the cash you need without affecting your taxable income for the year.
2. You could avoid required minimum distributions (RMDs)
Required minimum distributions (RMDs) are mandatory annual withdrawals that the government forces you to take from tax-deferred retirement accounts beginning in the year you turn 73. This can increase your tax bill for that year significantly, and it may force you to sell off investments you’d rather have held onto.
Roth accounts are exempt from RMDs, so a Roth IRA conversion can reduce the future RMDs you must take. This also gives you greater control over when you sell your investments.
3. You can to pass income-tax-free money to your heirs
While you can leave tax-deferred savings to your loved ones after you die, they will have to pay ordinary income taxes on these withdrawals. This can reduce how much they actually have to spend on things they want or need. Inheritances from Roth retirement accounts are generally free of income tax to the beneficiary because you, the original owner, already paid taxes on that money when you funded the account.
If any of the three above things appeal to you, that could be a sign that a Roth IRA conversion makes sense for you. You don’t have to convert a large chunk in 2026 if you’re worried about tax consequences today. Convert just enough to take you to the top of your tax bracket. Then, consider converting more in future years.
