Should You Convert $100k Per Year to a Roth IRA at Age 62 with $1M in a 401(k)?

Monday, 12 August 2024, 11:00

Retirees often face challenges with required minimum distributions (RMDs) from their retirement accounts. When you have significant assets, such as $1 million in a 401(k), you may want to consider a strategy like a $100,000 annual Roth conversion. This approach can reduce your tax burden and help manage future RMDs, as Roth IRAs are not subject to these distributions. Ultimately, the decision hinges on your financial situation, tax strategy, and retirement goals.
Yahoo Finance
Should You Convert $100k Per Year to a Roth IRA at Age 62 with $1M in a 401(k)?

Understanding RMDs and Roth Conversions

Retirees with substantial assets often need to consider required minimum distributions (RMDs). If you're in a position where you have enough income and do not require funds from a pre-tax portfolio, these withdrawals can lead to unnecessary tax liabilities. For instance, with $1 million in a 401(k), you must plan strategically.

The Benefits of Roth IRA Conversions

A $100,000 annual Roth conversion allows you to pay taxes now instead of later, potentially saving you money in the long run, especially when RMDs kick in.

  • Tax Efficiency: Lower your tax burden with strategic conversions.
  • Flexible Withdrawals: Withdraw funds from a Roth IRA without penalty unlike pre-tax portfolios.
  • Inheritance Strategy: Roth IRAs provide tax-free growth for beneficiaries.

Considerations Before Converting

  1. Evaluate your current tax bracket.
  2. Consider your future income needs.
  3. Seek advice from a financial planner.

In conclusion, while converting to a Roth IRA may seem prudent, it's essential to analyze your unique financial situation before making this move.


This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.


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