My wife and I are 70 years old. We have paid off all the things, including the home. Between my pension of $29,000 and Social Security, we’re getting a gross of $99,000 a 12 months in income, which is good enough. Our current savings in our brokerage account are $700,000. Our individual retirement account (IRA) totals $1.4 million. Our Roth is price $400,000. We each anticipate living to age 90. At our age, is it too late to do a Roth conversation?

-Anonymous

The short answer is not any. There isn’t a age cap in your ability to convert to a Roth.

There may be also no earned income requirement to convert to a Roth. So long as you could have a balance in an IRA, in theory, you possibly can keep converting to a Roth so long as you want.

The larger query is that this: Does converting to a Roth further your goals for the legacy of your wealth?

This needs to be the foundation before starting a Roth conversion strategy no matter your age. But it surely becomes particularly necessary when you find yourself considering Roth conversions as you approach and begin taking required minimum distributions (RMDs).

Most articles and conversations around converting to a Roth will deal with the years between retirement and taking RMDs. Those years can present a unbelievable opportunity to convert IRA dollars to a Roth. But they aren’t your only opportunity. Answer this query: What do I would like to occur to my wealth once I die? The reply is in the small print. Here’s find out how to think through this strategy.

A financial advisor may enable you to understand find out how to manage the tax repercussions of a Roth conversion. 

An Argument Against a Roth Conversion

On one end of the spectrum, let’s assume that your entire wealth can be given to your favorite charity while you die. If a professional charity receives your IRA while you pass away, there can be no taxes due, and it’s best to strongly consider not converting any of your IRA balance to a Roth during your lifetime.

In that case, converting to a Roth can be selecting to pay taxes that you might otherwise never must pay.

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A Case for a Roth Conversion

The other extreme can be in case your goal is to leave your entire wealth to your kids, grandchildren or other family members – and to be sure that that they never must worry about paying taxes on those dollars.

On this case, an argument may very well be made for attempting to convert every last dollar of your IRA balance to a Roth before you die. That way, your beneficiaries will receive an unlimited tax-free pie, and the IRS doesn’t get to share a single slice. This may occasionally not end in essentially the most tax savings, but it surely can be the very best option to be sure that your beneficiaries don’t be concerned about taxes.

The Middle Ground on Roth Conversions

Most individuals are going to find yourself somewhere in between, where converting to a Roth could make a whole lot of sense but only as much as a certain point.

Roth conversions make essentially the most sense when you possibly can decide to pay the income tax in your IRA balance and move it to a Roth in a comparatively low-income tax 12 months. “Relative” is a very important word here because it will be unique to every taxpayer’s situation.

The query to ask yourself here is that this: Am I concerned that, sooner or later in the longer term, I may very well be in the next tax bracket than I’m now?

Bear in mind that even when Congress does nothing to taxes in the following three years, tax rates are already set to extend in 2026.

Roth Conversion Aspects to Understand

If you happen to resolve a Roth conversion helps accomplish your wealth goals, there are several aspects to have in mind when deciding how much to convert in a specific 12 months. They’re:

How Much Income Tax Will Be Due

Generally speaking, the more we are able to opened up taxable income, the lower the federal income tax we are going to pay. That’s an oversimplification. But it surely provides a place to begin for enthusiastic about find out how to put together a Roth conversion strategy.

In the instance presented on this query, generally speaking, converting the complete $1.4 million from an IRA to a Roth in a single 12 months would end in more taxes paid than spreading those conversions over the remaining life expectancy of the taxpayers.

Other Tax Implications

Federal income tax gets all the eye when Roth conversions come up. But your marginal tax rate (the quantity of tax you will pay on the following dollar of income) is hardly the one consideration.

In this instance, 85% of the taxpayer’s Social Security (the best amount possible) is already included in taxable income. But for taxpayers with lower taxable income, Roth conversions have the potential to alter how much Social Security is taxable.

Increasing taxable income may also change a taxpayer’s eligibility for tax credits and deductions. For taxpayers who haven’t began claiming Medicare, the premium tax credit will be particularly impactful.

Medicare Premiums

For taxpayers approaching age 65 or already on Medicare, it’s crucial to keep in mind that the quantity you pay on your Medicare is impacted by your taxable income (specifically through modified adjusted gross income) and might crank up the true cost of doing a Roth conversion.

This will be particularly dangerous because each income bracket for Medicare premiums is treated as a cliff. So once you might be a single dollar over the brink, your premiums take the complete jump to the following level. In other words, in for a penny, in for a pound.

What If Tax Rules Change within the Future?

I often get asked whether I’m concerned Congress will change Roth rules in the longer term and having large Roth balances could turn into a liability.

My answer is all the time the identical: The tax code is written in pencil, and Congress can change anything it wants. We’ve to do the very best we are able to with the knowledge now we have and the laws which can be currently in place.

What to Do Next

My crystal ball remains to be broken, so anything I say about future rule changes would just be a guess. What I do know is that holding an IRA is like having a variable-rate mortgage with the IRS where they’ve the flexibility to alter the rate of interest to whatever they’d like, every time they’d like. A possibility to take the IRS out of the image by converting IRA dollars to Roth dollars is all the time price considering.

Steven Jarvis, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got an issue you need answered? Email AskAnAdvisor@smartasset.com and your query could also be answered in a future column.

Please note that Steven will not be a participant within the SmartAdvisor Match platform, and he has been compensated for this text. Taxpayer resources from the writer will be found at retirementtaxpodcast.com. Financial Advisor resources from the writer can be found at retirementtaxservices.com.

Discover a Financial Advisor

• If you could have questions specific to your investing and retirement situation, a financial advisor can assist. Finding a financial advisor doesn’t must be hard. SmartAsset’s free tool matches you with up to 3 vetted financial advisors who serve your area, and you possibly can interview your advisor matches for free of charge to come to a decision which one is correct for you. If you happen to’re ready to search out an advisor who can enable you to achieve your financial goals, start now.

• Planning for retirement? Use SmartAsset’s Social Security calculator to get an idea of what your advantages could appear to be in retirement.

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The post Ask an Advisor: We Are 70 Years Old, Have $99K in Retirement Income, a $1.4M IRA and Other Investments. Is It Too Late to Convert to a Roth? appeared first on SmartAsset Blog.