Should Clients Over 60 Do Roth Conversions?

The main disadvantage for clients of any age is that a Roth conversion will increase their taxes in the year of the conversion. For clients over 60, the income bump may also affect the tax status of their Social Security benefits and push them into Medicare premium surcharges two years out.

Here are some points to consider when looking at a Roth conversion for older clients.

Future RMDs 

For clients with substantial balances in a traditional IRA or other traditional retirement account, a Roth conversion can reduce the amount of future RMDs and the taxes associated with them.

When considering this strategy, it's important to look at the potential tax savings from reducing RMDs versus the taxes they will pay in the year of the Roth conversion.

The “gap” period between retirement (or semi-retirement) and claiming benefits like Social Security or a pension can be a good time to consider Roth conversions. Income is generally lower, placing clients in a lower tax bracket.

Let’s look at an example of a common scenario:

Bob and Kate are 65 and retired. They plan to wait until age 70 to claim their Social Security benefits. They have about $3 million in assets in traditional IRA accounts. Since Bob and Kate were born in 1960, they do not have to begin their RMDs until age 75. Their IRAs could conceivably grow to $4 million or more by the time they reach that age.

If their IRAs appreciate to $4.5 million by the time they reach 75, their first-year RMDs would total $182,927, based on a factor of 24.6 years from the IRS Uniform Lifetime Table. This would result in a significant federal tax hit for that year that might be $35,000 or more.

Let’s say that Bob and Kate did Roth conversions over the 10 years before reaching their RMD required beginning date. Instead of their accounts totaling $4.5 million, the IRAs were valued at $3 million. This would result in a first-year RMD of $121,951, and the gains on the assets they converted would be tax-free.

Tax Break Eligibility

Additionally, advisors must consider the new tax breaks in the recent tax and spending legislation.

A Roth conversion could affect clients’ eligibility for certain deductions and credits. The new $6,000 tax deduction for people 65 and older, for example, starts to phase out at incomes of $75,000 for an individual or $150,000 for a couple.

Medicare and Social Security

Income arising from a Roth conversion can affect clients’ Social Security and Medicare.

Clients above a certain income threshold are subject to an income-related monthly adjustment amount, known as an IRMAA surcharge, on their Medicare premiums.

For 2025, the surcharges kick in for individuals with modified adjusted gross income of $106,000 and married joint filers with $212,000. At this level, the monthly surcharge is $74.

The surcharge increases incrementally until it peaks at MAGI of $500,000 for single filers and $750,000 for married joint filers. The monthly surcharge is $443.90 in this case.

Note that MAGI numbers for 2025 are based on MAGI for 2023. Roth conversions can add to clients’ MAGI that will be used to calculate any Medicare surcharges two calendar years hence.

For clients on Social Security, the income generated by a Roth conversion can make more of their benefits subject to taxation for that year.

Retirement Income Planning

Money converted to a Roth can play an important role in retirement income planning by providing tax diversification in clients’ retirement plan assets. As clients in their 60s or older get closer to withdrawing retirement income, the impact of a Roth conversion becomes clearer. Does a Roth conversion make sense in this time frame? Or do the taxes outweigh the benefits?

Having assets in traditional retirement accounts, Roth accounts and taxable investment accounts offers clients flexibility in their retirement income planning. Beyond RMDs, clients can take the rest of their retirement withdrawals from any of these accounts and can base this decision in part on the tax implications from year to year.

It can make sense for clients who are 60 or older to consider Roth conversions in order to provide themselves with the options available with a Roth IRA.

Estate Planning

Clients in their 60s often reach a level of clarity in terms of their estate planning objectives, and how those objectives align with their retirement income planning goals. Roth conversions can be a useful tool in an estate planning strategy.

Under the Secure Act and Secure 2.0, the rules for most non-spousal inherited IRA beneficiaries have changed. In most cases, these beneficiaries must fully withdraw the funds in the inherited IRA within 10 years. This can result in a significant tax hit for beneficiaries with an inherited traditional IRA — especially if they are in their prime earning years.

With a Roth IRA, non-eligible beneficiaries still must withdraw the balance within the 10-year time frame, but withdrawals can be tax-free as long as the original account holder had met the five-year rule before death.

Back to our planning scenario:

Bob and Kate have two adult children, and they are planning on leaving assets in Roth IRA accounts to them. They will each have Roth IRA accounts with the children as primary beneficiaries, and the children will be the secondary beneficiaries on their other Roth IRA accounts.

Bob and Kate have been doing Roth conversions to fund these accounts and plan to continue doing so. They are happy to pay the taxes on these conversions, considering it a prepayment of taxes on behalf of their children.

Roth IRAs are not subject to RMDs and therefore allow clients to accumulate more money for heirs, whether they are a spouse or a non-spousal beneficiary.