One of the most common questions clients ask about Roth IRAs is “Should I make a Roth conversion?” If the answer is yes, the next question is “When should I convert?” While Roth conversions can make sense at any age, depending on your clients’ particular circumstances, generally speaking, the younger a client is, the more it makes sense.

Converting at a young age gives them the longest amount of time to let their money grow tax-free. And the chances are their retirement account balance is lower earlier in life than it will be as they get close to retirement, so the cost of converting may be less. Here’s the rub though, general advice is only right, in general.

It does not apply to all situations and may not apply to theirs. Maybe a Roth conversion would be better for them when they retire instead of while they’re young.

How would you know? There are many factors to consider, but here are three reasons why encouraging a client to wait until retirement to make a Roth IRA conversion might make sense:

(1)  Their income may be lower.

This is probably the most obvious reason you might consider suggesting a client wait until they retire to make a Roth IRA conversion. When they convert an IRA, 401(k) or other eligible retirement account to a Roth IRA, they’re going to have to add the converted amount to their income for that year. If they’re already in a high tax bracket, any income they generate from a Roth conversion is going to be taxed at that rate — or higher. Adding more income might not be very tax-efficient.

Suppose, for instance, that a client and spouse both work and together, they have $200,000 of taxable income. That puts them towards the upper edge of the 28 percent tax bracket.

Now imagine they have $100,000 that they would like to convert to a Roth IRA. If they do so, their income will now be $300,000, pushing them out of the 28 percent bracket and well into the 33 percent tax bracket. They’ll also find that now some or all of their investment income, like interest and dividends, is subject to an additional 3.8 percent surtax, making their real top rate about 36.8 percent.

Ouch. In this case, waiting until they retire and they have less overall income may provide valuable tax savings.

(2) Their Expenses may be lower.

Roth IRA conversions usually don’t make sense if, to (help) pay for the conversion, clients have to dip into their tax-deferred retirement savings or the potentially tax-free Roth they’ve just created. The math simply doesn’t add up.

That means that in order to make a Roth conversion worthwhile, clients generally need to have enough outside money (i.e., cash in the bank, money invested in a taxable account) to pay the tax on their conversion.

The problem with that, however, is that while they are still working, their expenses tend to be higher. Between the direct costs associated with their job — commuting, starting and raising a family, and savings already diverting each year into an IRA or 401k —  they may have little or no cash flow to save elsewhere and/or use to pay the tax on a Roth conversion.

By the time they reach retirement age, however, many of the big expenses they had while they were younger may be gone. For instance, they’re less likely to be saving or spending for a child’s education and they’re more likely to have finished paying off a mortgage. Eliminating those two expenses from a budget, alone, could free up tens of thousands of dollars in cash flow that can be diverted to savings and, ultimately, used to help pay the tax on a Roth IRA conversion.

(3) A Change In scenery may be good for clients… tax-wise.

Oftentimes, after clients retire, they end up moving. Some move right away, while others wait several years. Of course, there are others that stay put and never move, but for those that do, the move (in my experience) is typically due to one of two main factors: a more comfortable climate and/or a lower cost of living.

One of the biggest cost-of-living factors is taxes and, as it just so happens, many of the states that are climate-friendly for seniors are also tax-friendly for seniors. Florida and Texas come to mind as primary winners here, due to their warm weather and the fact that they have no state income tax, but those are extreme examples. They could simply move from a high-income-tax-state to a low-income-tax-state for some tax savings.

In either case, if they make a Roth IRA conversion after they move, they’re bound to lower — or eliminate entirely — the state income tax they’d owe on that conversion. In other words, they can contribute to an IRA, 401(k) or other retirement plan while they are working in a high-income-tax-state, possibly getting a deduction (check the rules in the state(s) where your client(s) live) and allow that money to grow tax-deferred until they retire.

Then, when it’s time to take the money out (or make a Roth IRA conversion) they can be in a low or no tax state and minimize their tax liability. This can be such a big deal that, for some clients, it’s worth moving to a different state just so they won’t have to pay state income taxes on large Roth IRA conversions.

These are three very good reasons to wait until your clients retire to make a Roth conversion, but there are many reasons for clients not to wait as well. Remember that when they retire, their tax-deferred retirement savings is likely to be higher than in younger years.

“More money, more problems” as the kids like to say. That’s not all though: Be sure to check out my next article, where we’ll explore 3 new reasons that, this time, make converting earlier in life more attractive.