Roth Conversions & the planning window before rmds begin

If I had to pick one planning opportunity that I think is most consistently underused by people in the years leading up to and just after retirement, it would be Roth conversions.

I know that might sound like a bold claim. But when I sit down with clients and we map out what their tax picture is going to look like over the next 20 or 30 years, the window between retirement and age 73 — when required minimum distributions kick in — often turns out to be the most important tax planning period of their entire financial life. And most people don't realize it until it's already closing.

What a Roth conversion actually is

A Roth conversion is simply the act of moving money from a traditional IRA or 401(k) — where it's never been taxed — into a Roth IRA, where it will grow tax-free and never be subject to required minimum distributions. You pay ordinary income tax on the amount you convert in the year you do it. In exchange, that money and all its future growth becomes permanently tax-free.

The question isn't whether Roth money is good. Everyone agrees it is. The question is whether it makes sense to pay the taxes now rather than later — and for a lot of people in the Phoenix area approaching retirement, the answer is yes.

Why the pre-RMD window matters so much

Here's the situation many of my clients find themselves in. They've spent 30 years doing exactly what they were told: maxing out their 401(k), taking the deduction, deferring taxes. Now they have $1 million, $1.5 million, maybe more sitting in pre-tax accounts. That's a success story — but it also means a significant future tax liability.

At age 73, the IRS requires you to start taking money out of those accounts whether you need it or not. Those distributions are fully taxable. And depending on the size of your accounts, those RMDs can push you into a higher tax bracket, increase the taxability of your Social Security, and trigger higher Medicare premiums through something called IRMAA — the Income Related Monthly Adjustment Amount.

But between the day you retire and the day RMDs begin, something interesting often happens: your taxable income drops. You're no longer earning a salary. You may not be taking Social Security yet. Your income might be lower than it's been in decades. That creates a window — sometimes 8 to 10 years — where you can convert traditional IRA money to Roth at relatively low tax rates, deliberately filling up lower tax brackets before RMDs force distributions at potentially higher ones.

Done thoughtfully, this strategy can meaningfully reduce your lifetime tax burden. Done poorly — or not done at all — you may end up paying far more in taxes over your retirement than you needed to.

Arizona adds another layer to consider

Arizona's flat income tax rate is relatively favorable compared to many states, and Social Security isn't taxed at the state level here. But federal taxes are another matter entirely, and the progressive federal tax brackets are where the real Roth conversion math happens.

One thing worth noting for Arizona retirees specifically: if you moved here from a high-tax state like California, you may already be benefiting from lower state taxes. That can make the federal tax picture even more important to optimize — and Roth conversions are one of the most powerful tools available to do that.

What this looks like in practice

I'm not going to pretend there's a one-size-fits-all answer here. The right amount to convert in any given year depends on your current income, your projected RMDs, your tax brackets, your other assets, and your goals. Some clients convert a modest amount each year over a decade. Others do larger conversions in a concentrated window. Some have situations where converting doesn't make sense at all.

But the analysis is almost always worth doing. The clients I've seen benefit most from this strategy are people who:

•  Have significant pre-tax retirement savings (think $500,000 or more in IRAs and 401(k)s)

• Are retired or approaching retirement and in a lowerincome year

• Have assets outside their retirement accounts to paythe conversion taxes without dipping into the IRA itself

• Expect tax rates to stay the same or rise in the future

If that description fits you, and you haven't had a serious conversation about Roth conversions with your advisor, it's worth putting on the agenda.

One more thing

I'll add a word of caution: Roth conversions done without a careful plan can backfire. Converting too much in a single year can push you into a higher bracket, trigger IRMAA surcharges, or affect your eligibility for certain credits. The goal is to be strategic — to find the conversion amount that makes sense year by year, in the context of your full financial picture.

This is the kind of planning I genuinely enjoy doing with clients. It's one of those areas where thoughtful, proactive work can make a real and lasting difference — not just in the numbers, but in the peace of mind that comes from knowing your retirement income is structured as efficiently as possible.

If you're in that pre-RMD window and wondering whether Roth conversions belong in your plan, I'd be glad to think through it with you.

Disclosure

The content of this post is for educational purposes only and should not be construed as personalized financial, tax, or legal advice. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Investors may lose all of their investments. Past performance is not indicative of current or future performance and is not a guarantee. Investment advice offered through IHT Wealth Management, a registered investment adviser.