Prefer to watch? Click here to watch and listen on YouTube.

Many retirees assume they’ve missed their chance to take advantage of Roth conversions. But age 65 may be one of the best times to start the conversation. While not beneficial for everyone, you deserve to know whether this powerful strategy could fit into your retirement plan.

In this episode of Money Wisdom, Nicholas J. Colantuono, CFP® and Eric Hogarth, CFP® explain how Roth conversions work and how they may help reduce your overall tax burden.

What Is a Roth Conversion?

A Roth conversion involves moving funds from a traditional retirement account into a Roth account. Contributions to traditional IRAs and 401(k)s may be tax-deductible, whereas Roth accounts use after-tax dollars. That means you pay taxes on the money now so it can potentially grow tax-free going forward.

If you’re like many people approaching retirement, most of your savings are in pre-tax accounts. That means withdrawals generally count as ordinary income. A Roth account works differently: qualified withdrawals are tax-free. Roth conversions can be especially valuable if you expect tax rates or your own tax bracket to be higher in the future.

When Could It Be Appropriate?

Roth conversions often make the most sense right after retirement and before required minimum distributions (RMDs) begin. During that window, your income may be lower than it was during your peak earning years. This can create an opportunity to convert money at a relatively favorable tax rate.

Another major benefit of Roth accounts is flexibility. Having money in different tax buckets can give you more control over your withdrawals and tax planning. Roth conversions can also reduce future RMDs and help with legacy planning by allowing certain assets to pass tax-free to your heirs.

When Might It Not Make Sense?

That said, Roth conversions are not right for everyone. The benefits of this strategy generally decline as you get older, especially once RMDs start. At that point, adding a conversion on top of your taxable distributions could become expensive.

The bottom line is that Roth conversions are a conversation everyone should have. Performed at the right time, they can be one of the most effective retirement tax planning strategies available. The key is to sit down with a financial professional to assess your current income, future tax situation, withdrawal needs, and estate goals.

Want to get the most out of your retirement? Get your free Guide to Maximizing Retirement book by texting “MAX” to 800-757-0436.