Why consider a Roth conversion? Simple: For decades, the playbook was simple: defer taxes as long as possible, let your IRA grow, and only take money out when the government makes you do it.
That worked when tax rates were high and deferral gave you a big edge. It’s different now – with historically low tax brackets, the SECURE Act changing inheritance rules, and Washington’s spending tab climbing higher every day—that old “delay, delay, delay” playbook just may very well backfire for many unsuspecting investors… and especially their beneficiaries, usually their children.
As a practicing fiduciary financial advisor serving Moorpark, Simi Valley, and Ventura County, I’ve seen this issue come up often for affluent pre-retirees. Instead of asking, “What’s the minimum I have to take out?” the smarter question may be, “What’s the maximum advantage I can get while the Roth conversion window is still open?”
The SECURE Act Changed the Rules of the Game
Passed in late 2019, the SECURE Act reshaped retirement planning in two big ways:
- RMDs now start later. You get an extra 18 months before Required Minimum Distributions kick in. Nice, but not game-changing.
- For those born in 1950 or earlier: Your RMDs began at age 72 (or 70 1/2 if you reached that age prior to 2020).
- For those born between 1951 and 1959: Your RMDs begin at age 73.
- For those born in 1960 or later: Your RMDs will begin at age 75.
- The stretch IRA is gone. Your children now have only 10 years to drain an inherited IRA. And if they inherit during their peak earning years? Those withdrawals pile on top of their income, potentially pushing them into punishing tax brackets. You might like my video about this.
In plain English: what used to be a gift of lifetime income can now be a gift of lifetime tax headaches – especially for your heirs.
Why “Minimum” Thinking Can Be Costly
The government calls it a required minimum distribution. Minimum, as in: do the least. But “minimum” thinking may be costing families millions in avoidable taxes, whether they live in Simi Valley, Moorpark, or anywhere else.
Here’s why:
- Taxes are on sale. Federal brackets are at historic lows. Yes, I know, the tax laws were made ‘permanent’. That’s Washington, D.C. talk for no expiration date; but, the truth is ‘permanent’ means ‘until congress changes the law.
- Waiting means less control. Once RMDs start, you don’t get to choose how much to withdraw—the IRS decides.
- Your heirs inherit the tax mess. A $2 million IRA could grow to over $3 million in ten years even at an annual 5% growth rate – and force your kids to add $200,000 per year in taxable income on top of their salaries. What will the tax brackets be in ten years? Don’t know? We’re not gambling with house money.
The Power of a Roth Conversion
A Roth conversion lets you move money from your pre-tax IRA into a Roth IRA. You’ll pay the tax bill now, at today’s known rates, and from then on the money grows and comes out tax-free.
Why it matters:
- Tax-free growth for life. Once converted, you’ve locked in future tax freedom.
- Flexibility in retirement. Roth withdrawals don’t inflate your taxable income or Medicare premiums.
- A cleaner legacy. Your heirs still have to withdraw within 10 years, but Roth dollars come out tax-free. That’s a far better gift than a tax-loaded IRA.
Two hypothetical examples:
Case 1: John and Susan, age 62, Moorpark.
They retire with $2 million in IRAs and modest income from part-time consulting. With 10 years before RMDs, they convert $150,000 per year into a Roth, staying within the 24% bracket. They pay taxes separately from a brokerage account. By age 72, they’ve shifted $1.5 million into Roth, cut their RMDs dramatically, and set up their kids for tax-free inheritance.
Case 2: Mike, age 72, Simi Valley.
Mike delayed withdrawals, followed the “minimum” strategy, and now RMDs push him into higher brackets. His Medicare premiums rise. When he passes, his kids inherit a $1 million IRA and a giant tax problem—they must drain it in 10 years, paying taxes on this increased income on top of their six-figure salaries.
Both followed the rules. Only one family avoided the trap.
Who Should Consider Roth Conversion Planning? Here’s a decision tree to help.
This strategy isn’t one-size-fits-all, but it may be ideal if:
- You expect tax rates to rise.
- You’re in a lower bracket now than you will be later.
- You can pay conversion taxes from non-IRA money.
- You want to leave tax-free assets to your heirs.
- You’re in the “gap years”—retired but not yet 72.
I’ve found Roth conversions especially valuable for affluent pre-retirees with $1M+ portfolios who want control over their future tax bill.
Timing Is Everything
The window won’t stay open forever. Today’s lower tax brackets expire after 2025. Once RMDs begin, your flexibility shrinks. And if Congress raises rates sooner, the deal gets worse.
Taxes are “On Sale” That’s why the next few years may be your best chance to convert strategically.
The Bottom Line
The SECURE Act closed the door on some old retirement strategies but opened a wider door for proactive tax planning. A well-timed Roth conversion can reduce your lifetime taxes, give you more flexibility in retirement, and leave your kids a cleaner, tax-free legacy.
The Roth conversion window is open. The question is: will you take advantage before it closes?
Would you like some help? Tell me a little about your situation (no sensitive info required). Then, schedule your introductory call!
No time like the present!
Jim
