Is It Too Late to Convert to a Roth at 70 Years Old?
My wife and I are both 70 years old, and we’ve managed to pay off all our debts, including our house. With a pension of $29,000 and Social Security, we have a gross income of $99,000 per year, which is more than enough to meet our needs. Additionally, we have $700,000 in savings in our brokerage account, $1.4 million in our individual retirement account (IRA), and a Roth worth $400,000. We expect to live until the age of 90. Given our age, we’re wondering if it’s too late for us to consider a Roth conversion. Can you advise? – Anonymous
The short answer is no. There are no age restrictions or earned income requirements for converting to a Roth IRA. As long as you have a balance in an IRA, you can continue converting to a Roth at any age.
However, the key question you should ask yourself is whether a Roth conversion aligns with your goals for your wealth’s legacy. This is an important consideration regardless of your age, but it becomes especially significant as you near and begin taking required minimum distributions (RMDs).
Many articles and discussions about Roth conversions focus on the years between retirement and RMDs, as this is an opportune time to convert IRA funds to a Roth. However, this is not your only opportunity. To determine the best strategy, ask yourself what you want to happen to your wealth after your passing. Here’s how to approach this decision:
An Argument Against a Roth Conversion:
Consider a scenario where you plan to leave your entire wealth to a qualified charity after your death. In this case, converting your IRA balance to a Roth during your lifetime may not be necessary. By leaving your IRA to a charity, you eliminate any tax payments, making a Roth conversion unnecessary.
A Case for a Roth Conversion:
On the other end of the spectrum, if you intend to leave your wealth to your children, grandchildren, or other loved ones, with the goal of ensuring they never have to worry about taxes on those funds, then converting every last dollar of your IRA balance to a Roth before you pass away could be a smart move. This strategy allows your beneficiaries to receive a significant tax-free inheritance, ensuring they won’t have to pay taxes on those funds.
The Middle Ground on Roth Conversions:
Most people fall somewhere in between these two extremes. Roth conversions make the most sense when you can pay the income taxes on your IRA balance and transfer it to a Roth in a year with relatively low income tax rates. Assess whether you anticipate being in a higher tax bracket in the future.
It’s important to acknowledge that tax rates are already set to increase in 2026, even if no new tax legislation is passed. Therefore, timing your Roth conversions intelligently can result in significant tax savings.
Roth Conversion Factors to Understand:
If you decide that a Roth conversion aligns with your wealth goals, consider the following factors when determining how much to convert in a given year:
- Income Tax Due: Generally, spreading out taxable income can help lower your federal income tax. However, in the example provided, converting the full $1.4 million from an IRA to a Roth in a single year may result in higher taxes compared to spreading out the conversions over the remaining life expectancy of the taxpayers.
- Other Tax Implications: While federal income tax is often the primary focus when discussing Roth conversions, it’s essential to consider how increasing taxable income can impact other aspects of your taxes. For example, it could change the taxable portion of your Social Security benefits or affect your eligibility for tax credits and deductions.
- Medicare Premiums: For individuals approaching age 65 or already enrolled in Medicare, remember that your taxable income affects the amount you pay for Medicare. Higher taxable income can increase the cost of Medicare premiums. Be cautious about crossing income thresholds that trigger higher premium levels.
- Predicting Future Tax Rule Changes: It’s natural to worry about potential future changes to the tax code that could impact Roth accounts. While no one can predict these changes with certainty, it’s important to work with the current laws and make the best decisions based on the available information.
What to Do Next:
While no one can predict the future, it’s worth considering a Roth conversion to remove the uncertainty of IRA taxes and give yourself more control over your wealth. Discuss your specific situation with a financial advisor who can provide personalized guidance and help you navigate the complexities of Roth conversions.
Remember, a Roth conversion should align with your long-term wealth goals, ensuring you leave the legacy you desire for your loved ones.
