Retirement Redux: Roth Conversion at 69?

As you approach retirement age, you may be considering how to optimize your retirement savings. One strategy that has gained traction is converting a traditional IRA to a Roth IRA, even at an advanced age. But is it too late for a Roth conversion if you're already taking Social Security and have a substantial 401(k)? Let's explore the possibilities.

At 69, with an $815k 401(k), converting to a Roth IRA might seem like an appealing option. Roth IRAs offer tax-free withdrawals in retirement, unlike traditional IRAs and 401(k)s, which are taxed as ordinary income. However, there are several factors to consider before making a decision.

First, let's address the potential tax implications. Converting a portion of your 401(k) to a Roth IRA will increase your taxable income in the year of conversion, which could push you into a higher tax bracket. Additionally, it may affect your Social Security benefits. If your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits) exceeds certain thresholds, up to 85% of your benefits may become taxable. Consult a tax advisor to understand how a Roth conversion could impact your specific tax situation.

Secondly, consider the impact on future required minimum distributions (RMDs). Roth IRAs do not have RMDs during the lifetime of the original owner. After a successful conversion, you would no longer be required to withdraw a minimum amount from your retirement account each year once you reach age 72. However, keep in mind that the converted amount will be subject to income tax in the year of conversion, which could push you into a higher tax bracket.



Lastly, evaluate if converting a portion of your 401(k) aligns with your other financial goals, such as providing for heirs or maintaining a certain lifestyle in retirement. While Roth IRAs can be a valuable tool for estate planning, as withdrawals made by your heirs after your death are tax-free, they may not be the best fit for every individual's unique financial situation.

In conclusion, while converting a portion of your 401(k) to a Roth IRA at age 69, while taking Social Security, can still be beneficial, it's essential to carefully consider the potential tax implications, the impact on future RMDs, and your overall financial goals. Consult with a financial advisor who can help you weigh the pros and cons, consider your unique financial circumstances, and make an informed decision about a Roth conversion.