For a long time, many advisors assumed the same thing. If someone is 60, 65, 70, or even 75, they are too close to retirement for a Roth conversion to make sense. The logic sounds reasonable at first. They take a tax hit now, it takes years to recover, and maybe they are not even going to spend all that money anyway. So, the easy move is to leave the IRA alone or shift it into some other growth strategy.
That thinking misses some very real costs. Once you factor in Medicare premium adjustments, required minimum distributions, and the tax burden left behind for children, the picture changes fast. In many cases, waiting is far more expensive than converting.
Introduction to Roth Conversions
The biggest mistake is assuming Roth conversions are only for younger clients with a long runway. That is simply not true. Older clients often have some of the strongest reasons to act, because the consequences of doing nothing are much closer and much easier to measure. A large traditional IRA does not just sit there quietly. It eventually turns into taxable income through RMDs, and that income can create ripple effects across retirement.
When you start framing the conversation correctly, a Roth conversion stops being just a tax event and starts becoming a broader retirement planning strategy. It is about managing future income, controlling Medicare costs, and reducing what the IRS takes from the next generation.
For advisors, this opens up a major opportunity. Go back through your book of business and look at how many clients have IRA money. There are probably more than enough people to start meaningful Roth conversion conversations right away.
The Hidden Impact of IRMAA and RMDs
Two issues tend to get overlooked more than anything else: IRMAA and RMD-driven taxes.
IRMAA stands for Income-Related Monthly Adjustment Amount. In plain English, it means higher income can push retirees into paying more for Medicare Part B and Part D. That extra cost can be significant.
Consider the retiree with more than $1 million in IRA assets. Once RMDs begin, those forced distributions can raise taxable income enough to trigger steep Medicare premium surcharges. One example is a 76-year-old paying about $800 more per month for Parts B and D because his income had been pushed so high by RMDs.
That is the kind of cost many people never properly model in advance. They may think, “I will just take the distributions when I have to.” But when those distributions increase taxable income, they can also increase:
- Federal income taxes
- Medicare Part B premiums
- Medicare Part D premiums
- Overall retirement income pressure
If a client had started converting earlier, before RMDs kicked in, there was a real chance to reduce or soften that impact. Even for someone already in the RMD stage, a Roth conversion can still be worth serious consideration if the long-term tax picture and estate impact justify it.
The key point is simple: a traditional IRA balance does not just create future income. It can create future problems.
The Tax Burden on Beneficiaries
The second major issue is what happens after the client passes away.
Under the current rules described here, children inheriting traditional IRA money do not just get a windfall. They often inherit a tax problem. Non-spouse beneficiaries generally have a 10-year window to distribute the account, and that compressed timeline can create a massive tax burden.
Now think about who those beneficiaries usually are. They are often adult children in their peak earning years. They are in their 30s, 40s, or 50s, already successful, already in a high bracket, and then they inherit hundreds of thousands of dollars in tax-deferred money. That is where the damage shows up.
If each child inherits, say, $500,000 from a parent’s IRA, those distributions can stack on top of their existing income. They may owe taxes on annual distributions, then face an even larger tax event when the remaining balance has to be cleared by the end of the 10th year. So, the conversation is not just about the parent’s tax bill. It is also about family tax efficiency.
A Roth conversion can potentially shift the tax payment to a time when it is more manageable and strategic, rather than leaving the next generation to deal with forced taxable distributions during their highest earning years. That changes the emotional side of the conversation too. Many clients are not interested in maximizing an account value on paper if a large piece of it will eventually be carved away by taxes. They want to know their money is being passed on more cleanly and more efficiently.
See the TWH Roth Conversion System in Action!
Contact TWH Agency to review the Roth conversion process, run client-specific numbers, and learn which annuity is built for this strategy today!
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