Author: Ryan Breen – 20 years in financial services | AIF®| Passed CFA Levels 1 & 2 | 7 years advising & financial planning

Understanding Roth Conversions: A Strategic Move for Your Retirement

As retirement planning becomes increasingly complex, one strategy gaining attention is the Roth conversion. Whether you’re nearing retirement or just starting to build your nest egg, understanding how Roth conversions work and when they make sense can be a powerful tool in your financial arsenal.

What Is a Roth Conversion?

A Roth conversion involves transferring funds from a traditional retirement account (like a Traditional IRA or 401(k)) into a Roth IRA. The key difference between these accounts lies in how they’re taxed:

• Traditional IRA/401(k): Contributions are typically tax-deductible, but withdrawals in retirement are taxed as ordinary income.
• Roth IRA: Contributions are made with after-tax dollars, but qualified withdrawals (including growth) are tax-free.

When you convert to a Roth IRA, you pay taxes on the amount you convert now, in exchange for tax-free withdrawals later.

Why Consider a Roth Conversion?

Here are some compelling reasons to consider converting:
1. Tax-Free Growth

Once in a Roth IRA, your investments grow tax-free. This can be especially beneficial if you expect your investments to appreciate significantly over time.

2. No Required Minimum Distributions (RMDs)
Unlike traditional IRAs, Roth IRAs don’t require you to start taking distributions at age 73. Converting to an account with RMD and reducing RMD from an account by removing the assets. This gives you more control over your retirement income and tax planning.

3. Tax Benefits and Recent Legislative Changes
Having both Traditional and Roth accounts offers flexibility to manage your taxable income in retirement, potentially reducing your overall tax burden. Recent legislation, known as the One Big Beautiful Bill, includes several provisions that may impact your tax planning.
For seniors, the bill provides an additional $6,000 standard deduction for those aged 65 and older, which can lower taxable income and make Roth conversions more tax efficient.
For all taxpayers, the State and Local Tax (SALT) deduction cap has been temporarily increased to $40,000, allowing for higher deductions on state and local taxes—potentially reducing overall tax liability.
Together, these changes may enhance the appeal and effectiveness of Roth conversions depending on your individual circumstances.

4. Estate Planning Benefits
Roth IRAs can be passed on to heirs with fewer tax implications, making them a useful estate planning tool.

When Is the Right Time to Convert?

Consider a Roth conversion when:

• Your income is temporarily lower (e.g., between jobs or early retirement).
• You expect to be in a higher tax bracket in the future.
• The market is down, allowing you to convert assets at a lower value (and pay less tax).

Potential Pitfalls to Watch Out For

While Roth conversions can be beneficial, they’re not for everyone. Be mindful of:

• Tax impact: The converted amount is treated as taxable income, which could push you into a higher tax bracket.
• Medicare premiums: Higher income from a conversion could increase your Medicare Part B and D premiums.
• Timing and strategy: Converting too much at once can lead to a hefty tax bill. Consider spreading conversions over several years.

How Riverside Financial Group Can Help

At Riverside Financial Group, we specialize in personalized financial planning for individuals and families at all stages of wealth accumulation. Whether you’re optimizing a high-value portfolio or making your first strategic moves toward retirement, our team provides:

• Customized Roth conversion strategies tailored to your income, goals, and tax situation.
• Multi-year tax planning to minimize liabilities and maximize long-term growth.
• Integrated estate and legacy planning to ensure your wealth benefits future generations.

Is a Roth Conversion Right for You?

The answer depends on your unique financial profile. But with the right guidance, a Roth conversion can be a transformative step toward a more tax-efficient and secure retirement.

Let’s explore your options together. Contact Riverside Financial Group today to schedule a personalized consultation and discover how strategic planning can elevate your financial future.