MML# 079: To Convert or Not to Convert? Roth Conversions in Focus.

I've written about Roth conversions a few times over the years, always in the context of saving on taxes. I've never actually started at the beginning.

So let's do that.

What a Roth conversion actually is

When you convert, you take money sitting in a traditional IRA or 401(k) — money that's never been taxed — and move it into a Roth account. You pay income tax on the amount you convert today, with the idea that the money grows tax-free and you owe nothing on it in retirement.

Simple enough.

The advice you'll find online

Google "Roth conversions" and you'll get some version of this: convert when you expect to be in a lower tax bracket in the future than you are today.

That's a decent starting point.

The issue is that nobody actually knows what their future tax bracket looks like. Tax law changes. Income changes. So while the bracket comparison is useful, it leaves out a lot.

The quiet years before RMDs

Your highest-income years are your working years. When you retire, there's often a gap between when you stop working and when required minimum distributions (RMDs) kick in at age 73 where your taxable income drops considerably.

That gap is your window. Converting during those years means paying tax at a lower rate than you would during peak income, or later when RMDs force a large amount back onto your return every year.

Chances are, that window is smaller than you'd expect. Social Security, pension income, investment distributions — they fill it up faster than most people anticipate. But for many attorneys, it still exists, and it's worth paying attention to.

The liquidity side of things

Most attorneys I work with have spent decades doing the right thing: maximizing contributions to tax-deferred accounts. Smart move during the earning years.

But in retirement, those accounts come with a catch.

Say you need a large sum — a home renovation, a health event. If most of your savings are in a traditional IRA, pulling that amount out in a single year can push your income into territory you weren't expecting. Higher Social Security taxes. Medicare surcharges. Capital gains rates that jump because your income crossed a threshold. It all connects.

A Roth account gives you a bucket of money that doesn't trigger any of that. Conversions done in the early years of retirement can build that bucket before you actually need it.

When the goal isn't your own taxes

Some of the attorneys I work with have a retirement plan that looks genuinely comfortable. Income covers expenses, maybe with room to spare.

When that's the case, the Roth question takes a different shape.

Converting pre-tax dollars and paying the tax during your lifetime can leave your beneficiaries with tax-free income on what they inherit. Yes, it may increase your lifetime tax bill. But for attorneys thinking about passing wealth efficiently, that tradeoff is worth a serious conversation.

So, should you be converting?

Maybe. It depends on your income in retirement, your RMD picture, your estate goals, and things specific to your situation that no article can account for.

What I'd push back on is using the bracket comparison as your only framework. The full picture is more nuanced — and for most attorneys, there's real money in getting it right.

Is there something about Roth conversions I didn't cover here? A factor you're weighing, a question you can't quite answer? Hit reply and let me know. These questions usually turn into future editions.

Cheers, David