A Roth IRA conversion can be an effective financial planning tool for many investors. There are a number of pros and cons to doing a Roth conversion at any age, but many of these issues are especially critical for those who are 60 or older.
Here are some key issues for these older investors to consider when deciding whether a Roth conversion makes sense for them.
Reducing future required minimum distributions
A key benefit of doing a Roth conversion is that the money converted from a traditional IRA, 401(k), or other type of traditional retirement account will not be subject to RMDs (required minimum distributions) in future years. The amounts converted will not be part of the year-end account total used to calculate RMDs for future years.
For those with large balances in traditional retirement accounts, this can benefit them in several ways, including reduced taxes from future RMDs. This should, of course, be weighed against the tax impact of the Roth conversion in the year that the conversion is done.
Tax impact of Roth IRA conversions: current and future
Roth conversions will increase your taxable income for the year the conversion is made, but they can also potentially lower your taxable income in subsequent years.
Roth conversions are taxed as ordinary income in the year of the conversion. Besides any tax implications, the increase in income can have an impact elsewhere, in many cases with Medciare costs and the taxability of Social Security.
The higher income from the Roth conversion could also impact your ability to take advantage of some deductions. Notable here is the senior deduction, which is in place for the tax years 2025 through 2028.
This deduction allows for a $6,000 deduction for single filers and a $12,000 deduction for married and joint filers over age 65. The deduction begins to phase out at an income of $75,000 for single filers and $150,000 for married filers.
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How a Roth conversion affects Social Security and Medicare
Taxable income arising from a Roth conversion can impact both Social Security and Medicare.
For those who are receiving Social Security benefits, the extra income generated by the Roth conversion could make more of their benefits subject to taxes. This is tied to their income for the year and their tax filing status.
For 2026, single filers with more than $34,000 in AGI and married joint filers with over $44,000 in AGI will have up to 85% of their Social Security benefits subject to federal taxes. State tax rules vary.
If your modified adjusted gross income (MAGI) exceeds a certain amount, your Medicare premiums could be subject to a Medicare IRMAA surcharge. IRMAA stands for Income Related Monthly Adjustment Amount. MAGI is your adjusted gross income with certain tax-exempt items added back in.
If your MAGI triggers an IRMAA surcharge, that surcharge will be added to your Medicare Part B and D premiums two calendar years hence. IRMAA surcharges for 2026 are based on MAGI for 2024. For 2026, the base Part B premium is $202.90 per month with no added Part D premium. The top Part B premium is $689.90, and the top Part D add-on is $91 for 2026, based on 2024 MAGI.
What to know about estate planning
The rules on inherited IRAs for non-spousal beneficiaries changed several years ago with the Secure Act and Secure 2.0. Non-spousal beneficiaries, including adult children, must withdraw all funds from an inherited IRA within 10 years. In the case of a traditional IRA, this money will be taxed, potentially resulting in a significant tax hit for the beneficiaries.
While an inherited Roth IRA must also be fully withdrawn within 10 years, the withdrawals are tax-free as long as the original account holder met the Roth five-year rule before their death. Paying taxes on the conversion is a way for parents and others to increase the amount the beneficiaries will receive.
The bottom line
A Roth conversion can be a very effective planning tool for many people 60 or older. However, this decision needs to be made on a case-by-case basis, and even on a year-by-year basis, for each person.
A Roth conversion might be a very good idea in one tax year, but not the next.
