“Let me get this straight. You want to pay more in taxes?”

It’s a reasonable reaction to a Roth conversion. After years of saving diligently and looking for ways to reduce your tax bill, voluntarily creating taxable income can feel backward.

But a larger tax bill this year doesn’t automatically make a financial decision a bad one. Sometimes, paying taxes sooner can help reduce what you or your beneficiaries pay later.

The key is timing. And that’s where a conversation between you, your CPA, and your financial advisor becomes valuable.

The Tax Bill Comes First. The Benefits Come Later.

A Roth conversion moves money from a traditional retirement account into a Roth account. The previously untaxed amount generally becomes taxable income that year. In return, future qualified Roth withdrawals can be income-tax-free, subject to applicable requirements.

The cost is immediate and easy to calculate. The potential benefits may unfold over decades.

That doesn’t mean your CPA is missing the bigger picture. Many CPAs provide extensive long-term planning, and their concerns may be entirely justified. But it’s worth making sure everyone is answering the same question: Are we trying to minimize this year’s taxes or improve the tax picture over your lifetime?

When Paying Taxes Now Could Make Sense

Imagine you’ve recently retired but haven’t started Social Security or required withdrawals from your traditional IRA. Your taxable income may temporarily be lower than it will be later – and that window could provide an opportunity to convert some savings at a lower tax rate than you expect to pay on future withdrawals.

Conversions can also reduce the traditional IRA balance used to calculate future required minimum distributions. Roth IRAs, by comparison, don’t require withdrawals during the original owner’s lifetime. That can provide more control over when you access your savings.

The goal isn’t just to create tax-free income; it’s to determine whether the taxes you pay today are a reasonable trade for the flexibility and potential savings you gain later.

Your Beneficiaries’ Taxes Belong in the Conversation

If you plan to leave retirement assets to your children, their tax situation may matter, too.

Many adult children have to empty an inherited IRA within 10 years (although exceptions apply). Taxable withdrawals from a traditional IRA generally add to their income, potentially during their highest-earning years. Inherited Roth withdrawals can be income-tax-free when the applicable requirements are met, though beneficiary distribution rules still apply.

That raises a useful question: Would paying conversion taxes at your rate today be more efficient than having your children pay taxes at their rates later?

Possibly. But helping your heirs shouldn’t come at the expense of your own financial security.

When Your CPA’s Caution May Be Right

Not every conversion is a good conversion. Reasons to reconsider include:

• You expect a lower tax rate later. Converting during peak earning years could mean paying more tax than necessary.
• Paying the tax would strain your cash reserves. The tax bill needs a funding plan, not just a favorable projection.
• Additional income could trigger other costs. Conversion income can affect Medicare premium surcharges, generally two years later.
• You may need the money soon. Withdrawal rules and applicable five-year periods can affect access without taxes or penalties.

And remember: This isn’t an all-or-nothing decision. A partial conversion may be more appropriate than converting a large amount at once.

A Better Conversation Than “Should We Convert?”

A Roth conversion isn’t automatically smart because it offers tax-free withdrawals later. And it isn’t automatically wrong because it increases taxes today. The right decision depends on how the trade-offs fit your retirement plans. Instead of debating whether Roth conversions are good or bad, ask your CPA and financial advisor to compare specific scenarios:

• What happens if we make no conversions?
• What would different conversion amounts cost?
• How might future withdrawals and beneficiaries’ taxes change the outcome?
• Where will the money to pay the taxes come from?

At Approach Retirement Advisors, we can help you explore whether a Roth conversion fits your broader financial picture and coordinate with your CPA to evaluate the tax implications.

Contact us to start a conversation about your retirement income strategy and whether paying some taxes now could make sense for your future.

 

This article is for educational purposes only and is not individualized tax, legal, or investment advice. Consult your financial and tax professionals before making a Roth conversion.