Understanding Roth conversions for your retirement accounts

A Roth conversion is a tax strategy often discussed in the context of retirement planning because of the specific problems it is designed to address. At its core, the issue centers on uncertainty — about future tax rates, future income, and how retirement savings will ultimately be accessed and taxed.

Many retirees accumulate the bulk of their savings in traditional, pre-tax accounts such as IRAs or 401(k)s. While these accounts provide an upfront tax benefit, they also create a long-term challenge: every dollar withdrawn in retirement is treated as ordinary income. This can lead to higher-than-expected tax bills later in life, particularly if tax rates rise, income needs increase, or other income sources come into play. What looks like tax deferral during working years can turn into tax concentration during retirement.

Another problem arises from required minimum distributions, or RMDs. Once these mandatory withdrawals begin, retirees lose control over the timing and size of their taxable income. RMDs can push retirees into higher tax brackets, increase Medicare premium surcharges, and make Social Security benefits more heavily taxed. For those who do not need the income, being forced to withdraw and pay taxes anyway can feel especially inefficient.

Estate planning adds another layer of complexity. Heirs who inherit traditional retirement accounts typically must withdraw the funds — and pay income taxes — over a relatively short period of time. This can be particularly problematic if beneficiaries are in their peak earning years, compounding the tax impact and reducing the after-tax value of the inheritance.

Roth conversions are frequently discussed because they directly relate to these challenges. They are tied to concerns about tax diversification, income control, and long-term planning in an environment where tax laws and personal circumstances can change. Rather than focusing on how Roth conversions are executed, it’s important to understand the underlying problems they are meant to address — problems that can quietly erode retirement income, limit flexibility, and create unexpected tax consequences if left unexamined. In this episode, Bryan Jepson, MD, CFP, discusses the right way to use a Roth conversion to save your thousands in taxes.