Should You Consider Roth Conversions If Over 70?

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“I always come back to one simple litmus test, do you want to pay the taxes on your IRA now, or do you want the beneficiaries to pay the taxes later?"

In this episode of The Limitless Retirement Podcast, Danny Gudorf of Gudorf Financial Group uncovers the myriad of benefits of Roth conversions for those in their 70s, including the potential for a tax-free inheritance and the flexibility gained by avoiding required minimum distributions (RMDs). Tune in to understand why having a mix of traditional and Roth accounts can optimize your tax management and financial control, even at this stage of your retirement journey.

But it’s not all sunshine and rainbows with Roth conversions. Danny walks us through the immediate tax implications and other potential drawbacks to help us make an informed decision. With proper planning and guidance, achieving security, flexibility, and peace of mind is within reach. Equip yourself with the knowledge to maximize your retirement savings and legacy, no matter what stage of life you’re in.

Key Topics:

  • Are You Too Old for a Roth Conversion? (00:39)
  • Leave a Tax-Free Inheritance to your Loved Ones (03:25)
  • A Roth IRA as a Powerful Estate Planning Tool (04:51)
  • A Roth IRA Adds Flexibility and Control (05:28)
  • Having a Mix of Traditional and Roth Accounts (06:25)
  • Partial Roth Conversions: A Roth Conversion is Not ‘All or Nothing’ (07:36)
  • Taxes as a Deterrent in Roth IRA Conversion (08:18)
  • Uncertainty Around Future Tax Rates (11:26)
  • Bottom Line: Is a Roth Conversion Right in Your 70s? (13:38)

Are You to Old For A Roth Conversion In Your 70’s?

Key Takeaways:

  • There's no age limit for Roth conversions; they can be beneficial even in your 70s.
  • Roth conversions offer tax-free inheritance and flexible retirement planning.
  • Consider the immediate tax impact and uncertainty of future tax rates before converting.
  • A mix of traditional and Roth accounts provides financial flexibility in retirement.
  • Consult with a financial advisor to determine if a Roth conversion aligns with your goals.

As we approach retirement, managing our finances becomes increasingly crucial. One question that often arises is whether it's too late to consider a Roth conversion, especially for those in their 70s. Today, we'll dive deep into this topic, exploring the benefits and potential drawbacks of Roth conversions for retirees.

Understanding Roth Conversions: A Brief Overview

Before we delve into the specifics, let's quickly recap what a Roth conversion entails. Essentially, it's the process of moving funds from a traditional IRA or 401(k) into a Roth IRA. The key difference lies in the tax treatment: traditional IRAs are funded with pre-tax dollars and taxed upon withdrawal, while Roth IRAs are funded with after-tax dollars and provide tax-free withdrawals in retirement.

The Current Tax Landscape

It's important to note that we're currently in a unique tax environment. The Tax Cuts and Jobs Act of 2017 introduced historically low tax rates, but these are set to expire in just two years unless Congress takes action to extend them. This impending change makes now a critical time to reassess your retirement and tax planning strategies, including the possibility of a Roth conversion.

Why Consider a Roth Conversion in Your 70s?

Many people assume that once you reach your 70s, it might be too late to benefit from a Roth conversion. However, this is far from the truth. Let's explore two compelling reasons why a Roth conversion might be a smart move for those in their golden years.

1. Leaving a Tax-Free Legacy

One of the most significant advantages of a Roth conversion, regardless of age, is the ability to leave a tax-free inheritance to your loved ones. This benefit becomes even more valuable as you enter your 70s and start thinking more seriously about your legacy.

Traditional IRAs are subject to Required Minimum Distributions (RMDs), which can result in a substantial tax burden for your beneficiaries. In contrast, Roth IRAs do not require distributions during the account owner's lifetime. This means your Roth IRA can continue to grow tax-free for as long as you live, potentially leaving a much larger tax-free inheritance to your heirs.

Imagine the peace of mind and financial stability you could provide to your children or grandchildren by leaving them a significant tax-free inheritance. By converting a portion of your traditional IRA to a Roth IRA, you're essentially giving your beneficiaries a gift that keeps on giving. They'll be able to withdraw funds tax-free without worrying about the impact on their own tax situation. This is especially important when your beneficiaries are already in medium to high tax brackets.

Moreover, a Roth IRA can be a powerful estate planning tool. It allows your heirs to stretch out the distributions over the ten years following your passing. This means they can continue to benefit from tax-free growth for many years after you're gone. In some cases, a well-planned Roth IRA inheritance can provide financial security for multiple generations of your family.

2. Increased Flexibility and Control in Retirement

Another compelling reason to consider a Roth conversion in your 70s is the added flexibility and control it brings to your retirement plan. As mentioned earlier, Roth IRAs are not subject to RMDs, which means you're not forced to withdraw funds from these accounts each year once you reach RMD age.

This flexibility can be particularly beneficial if you have other income sources like pensions, Social Security, or taxable brokerage accounts, and don't need to rely on your IRA for living expenses. By moving some of your traditional IRA to a Roth, you can allow that money to continue growing tax-free for as long as you choose, serving as a valuable source of tax-free income in retirement or for your heirs.

Furthermore, having a mix of traditional and Roth accounts in retirement can give you more control over your tax situation. It allows you to strategically manage your taxable income in certain years. For example:

  • In years when you find yourself in a lower tax bracket, you could choose to withdraw more funds from your traditional IRA, knowing you'll pay less in taxes.
  • In years when your taxable income is higher, you could rely more on tax-free withdrawals from your Roth IRA to help manage your tax liability.

This strategy for retirement income planning can help reduce your overall tax burden throughout retirement and allow you to make the most of your hard-earned savings. By having a mix of account types, you give yourself more options and planning flexibility, allowing you to adapt to changes in your finances or the tax code over time.

The Partial Roth Conversion Strategy

It's important to remember that a Roth conversion is not an all-or-nothing proposition. You can choose to convert only a portion of your traditional IRA each year, gradually shifting more of your retirement savings into tax-free accounts over time. This approach, known as a partial Roth conversion, can be especially useful for those in their 70s who may not want to convert a large sum all at once.

Potential Drawbacks of Roth Conversions in Your 70s

While there are compelling reasons to consider a Roth conversion in your 70s, it's crucial to weigh the potential drawbacks as well. Here are two factors that might give you pause when deciding whether a Roth conversion is right for you:

1. Immediate Tax Impact

For many people considering a Roth conversion, taxes are the biggest deterrent. This is especially true for those in their 70s. When you convert funds from a traditional IRA to a Roth IRA, the amount converted is treated as taxable income in the year of conversion. This means that depending on the size of the conversion and your other income, you could be pushed into a higher tax bracket for that year.

The resulting tax bill could be substantial, particularly if you have a sizable IRA balance to convert. For those on a fixed income or with limited retirement savings, the cost of a Roth conversion may outweigh the long-term potential benefits.

Before proceeding with a conversion, it's crucial to carefully calculate the tax impact and consider whether you have the funds to pay the extra tax without compromising your current retirement lifestyle or draining your emergency funds.

Strategies to Mitigate the Tax Impact

To lessen the tax impact of a Roth conversion, consider these strategies:

  1. Spread out the conversion: Convert smaller portions of your traditional IRA each year to minimize tax consequences and avoid pushing yourself into a much higher bracket in any single year.
  2. Time your conversions strategically: Coordinate your Roth conversions with other tax planning strategies, such as charitable giving or selling investments at a loss, to help offset some of the extra taxable income.
  3. Work with a professional: Consult a financial advisor or tax professional to develop a comprehensive plan that minimizes the tax impact of your Roth conversions.

Remember, the decision to convert to a Roth IRA in your 70s should be based on a careful analysis of your overall financial situation, retirement plan, future income needs, and long-term goals. If the upfront tax cost is too high and would strain your finances, it may be wise to forgo a conversion or consider a smaller partial conversion instead.

2. Uncertainty of Future Tax Rates

Another factor that can make the decision to do a Roth conversion in your 70s less clear-cut is the uncertainty surrounding future tax rates. While Roth IRAs offer the significant benefit of tax-free withdrawals in retirement, predicting future tax rates can be challenging.

There's always the possibility, however unlikely, that tax rates could be lower in the future than they are today. If this were the case, it would make the tax-free benefit of a Roth IRA less valuable. If you convert much of your traditional IRA to a Roth today, paying tax at current rates, but tax rates decrease later, you may end up having paid more in taxes than necessary.

It's crucial to consider what your tax bracket will be at the time of the Roth conversion and what you expect it to be in future years. If your tax rate is likely to be lower in future years than the rate at which you're converting, it may not make sense to do the conversion.

Similarly, if your income decreases after your Roth conversion, you could find yourself in a lower tax bracket than when you made the conversion. In this scenario, the benefit of the Roth conversion would be diminished, as you would have paid taxes at a higher rate than you would have otherwise been subject to.

Balancing Uncertainty with Flexibility

Given this uncertainty, it's crucial to weigh the potential risks and rewards of a Roth conversion carefully. Instead of trying to predict future tax rates, focus on building flexibility into your retirement income plan by having a mix of both traditional and Roth IRA accounts. This diversification can help you adapt to different tax scenarios and make the most of your savings, no matter what the future holds.

When evaluating the impact that future tax rates can have on your Roth conversion decision, consider your overall financial situation and goals. If leaving a tax-free legacy to your beneficiaries or having more control over your retirement income is a priority, the benefits of a Roth conversion may outweigh the risks associated with uncertain future tax rates.

The Litmus Test: A Simple Decision-Making Tool

So, how do you ultimately decide whether a Roth conversion is right for you in your 70s? As we've seen, there are compelling arguments on both sides of the equation. To help navigate this complex decision, consider this simple litmus test:

Do you want to pay taxes on your IRA now, or do you want your beneficiaries to pay the taxes later?

Ultimately, someone will have to pay the taxes on the funds in your traditional IRA accounts. It's just a question of who and when. By converting to a Roth IRA, you're choosing to pay the taxes now in return for tax-free withdrawals later and the ability to leave a tax-free legacy to your loved ones.

If you can pay the upfront tax cost of a conversion without harming your lifestyle or draining your savings, and you value the flexibility and estate planning benefits of a Roth IRA, then a conversion might be right for you. However, if you're concerned about the immediate tax impact, uncertain about future tax rates, or lack the cash to cover the extra tax, it may be best to stick with your traditional IRA or consider partial Roth conversions.

The Importance of Professional Guidance

The choice to convert to a Roth IRA in your 70s is a personal one that depends on your financial situation, desires, and values. There's no one-size-fits-all answer or age cut-off for when a Roth conversion stops making sense. This is where working with a trusted financial planner can be invaluable.

An expert can help you:

  1. Navigate your unique situation
  2. Weigh the pros and cons of a Roth conversion in the context of your individual retirement plan
  3. Make an informed decision that aligns with your long-term goals and needs

Remember, retirement planning is not a one-time event. It's an ongoing process that requires careful thought and regular review. By staying proactive, informed, and working with a trusted advisor, you can make the most of your hard-earned savings and enjoy the retirement you've always dreamed of.

Conclusion

Whether you're in your 70s or just starting to think about retirement, it's never too late to take control of your financial future. A Roth conversion can be a powerful tool in your retirement planning toolkit, offering benefits like tax-free growth, flexible withdrawals, and the ability to leave a tax-free legacy to your heirs.

However, it's crucial to carefully consider the immediate tax implications and your long-term financial goals before making a decision. By weighing the pros and cons, considering your unique situation, and potentially seeking professional advice, you can make an informed choice about whether a Roth conversion is right for you.

Remember, with the right planning and guidance, you can achieve the security, flexibility, and peace of mind you deserve in your retirement years. Don't hesitate to take action today – your future self will thank you.

*This blog post is based on the insights shared by Danny Gudorf of Gudorf Financial Group in an episode of the Limitless Retirement Podcast. For personalized advice tailored to your unique circumstances, always consult a financial, legal, or tax professional.*

Transcript: Prefer to Read — Click to Open

Danny (00:05.454)

Welcome to the Limitless Retirement Podcast. My name is Danny Goodorf, the owner of Goodorf Financial Group. Whether retirement is on your horizon or you’ve already made the leap, this podcast tackles your most important questions in retirement. Every episode, I’m here to share valuable tips and strategies to help you succeed in retirement. So let’s go ahead and get started with today’s show.

Are you too old for a Roth conversion? Today I want to address a question that I get asked all the time. Is there an age limit for doing a Roth conversion? This is a relevant topic now. I’m recording this video around tax day in 2024. We all know that taxes will rise soon. If you remember the tax law from 2017, it brought us

very low tax rates. They are set to expire in just two years unless Congress extends them. This means now is a key time to consider your retirement plans. This includes the chance of a Roth conversion. Just yesterday, I received a call from a client that’s in his early 70s who was wondering if he should go ahead with a Roth conversion.

His question was intriguing because traditionally people have often thought that once you reach your 70s, it might be too late to benefit from a Roth conversion. However, I’m here to tell you that there’s no hard or fast rule when it comes to the right age for Roth conversions. In your 70s, every financial choice is important. You must consider them carefully.

This is especially true for your retirement accounts. One important factor to keep in mind is your required minimum distributions or RMDs. You may know that RMDs are the government’s way to ensure they get the tax that they’re owed from your IRAs and 401ks. Once you reach a certain age, the IRS essentially forces you to start withdrawing funds

Danny (02:34.35)

from those retirement accounts. Whether you need the money or not, that RMD must come out. In this video, we’re gonna explore two compelling reasons why Roth conversion might be a smart move for those in their 70s, as well as two potential drawbacks to keep in mind. We’ll also discuss a simple litmus test I use.

with my clients to help them decide whether a Roth conversion is the right choice for their unique situation. My name is Danny Goodorf, owner of Goodorf Financial Group. Now, let’s dive in to the two primary reasons why I often recommend Roth conversions for my clients in their 70s. A Roth conversion has a big advantage, no matter what your age is.

it lets you leave a tax -free inheritance to your loved ones. This is especially true if you’re in your 70s and thinking about your legacy. Traditional IRAs are subject to RMDs, which can lead to substantial tax burdens for your beneficiaries. In contrast, Roth IRAs do not require distributions during the account owner’s

lifetime. That means you can allow your Roth IRA to continue to grow tax free for as long as you live, potentially leaving a much larger tax free inheritance to your heirs. Now imagine the peace of mind and financial stability you could provide to your children or grandchildren by leaving them a significant tax free inheritance.

By converting just a portion of your traditional IRA to a Roth IRA, you’re essentially giving your beneficiaries the gift that keeps on giving. They’ll be able to withdraw those funds tax -free without having to worry about the impact on their own tax situation. Moreover, a Roth IRA can be a powerful estate planning tool as it allows your heirs

Danny (04:58.958)

to stretch out the distributions over a 10 -year period of time. This means they can keep getting tax -free growth for many years after you’re gone. In some cases, a well -planned Roth IRA inheritance can provide financial security for multiple generations of your family. It’s just another reason to consider Roth conversions in your 70s.

Another reason to consider a Roth conversion in your 70s is the flexibility and control it adds. As mentioned earlier, Roth IRAs do not have RMDs, which means you’re not forced to withdraw funds from those accounts each year once you reach a certain age. This flexibility can be a big help if you have other income sources like a pension, social security,

or other taxable investment accounts. You don’t need to rely on your IRA for your living expenses. By moving some of your traditional IRA to a Roth, you can let that money keep growing tax -free for as long as you choose. It will be a valuable source of tax -free income in retirement or for your heirs. Also,

Having a mix of traditional and Roth accounts in retirement can give you more flexibility and control. It can help you lower your taxable income each year. For example, if you find yourself in a lower tax bracket in a particular year, you could choose to withdraw more funds from your traditional IRA, knowing that you’ll pay less in taxes. Now in the years where your taxable income is higher,

you could rely more on your tax -free withdrawals from your Roth IRA to help manage your tax liability. This strategy for retirement income planning can help cut your total tax burden over the course of your retirement. It can also help you make the most of your hard -earned savings. Having a mix of accounts gives you more options to choose from.

Danny (07:25.774)

It also gives you the flexibility to adapt to changes in your finances or changes to the tax code over time. It’s important to remember that a Roth conversion is not an all or nothing proposition. You can choose to convert part or all of your traditional IRA each year. This will shift more of your retirement savings into

tax -free accounts over time. This approach is known as a partial Roth conversion. It can be especially useful for those in their 70s who may not want to convert a large sum all at once. There are good reasons to do a Roth conversion in your 70s, but it’s critical to weigh the potential drawbacks as well. Here, I want to go over two factors that might give you pause

when determining whether a Roth conversion is right for you. For many people considering a Roth IRA conversion, taxes can be a big deterrent. This is especially true for those in their 70s. When you convert funds from a traditional IRA to a Roth IRA, the amount converted is treated as taxable income in the year the conversion is done.

This means depending upon the conversion size and your other income, you could be pushed into a higher tax bracket for that year. The resulting tax bill can be substantial, particularly if you have a sizable IRA balance to convert. For those on a fixed income or with little retirement savings, the cost of a Roth IRA conversion may be high.

and may be higher than the potential long -term benefits. You must carefully calculate the tax impact of a conversion. Also, if you have the money to pay the extra tax on the Roth conversion without harming your current life or draining your emergency fund. These are important things to think about.

Danny (09:49.262)

You don’t want to overextend yourself just to complete a Roth conversion. One strategy to lessen the tax impact of a Roth conversion is to spread it out over several years, like we talked about. You can convert small parts of your IRA each year. This approach, known as a partial Roth conversion, can help manage the tax consequences and avoid pushing you into a higher tax bracket.

Another option is to time your Roth conversion with other tax planning opportunities. For example, you could do it with strategies like charitable giving or selling investments at a loss. These strategies will help offset the extra taxable income that you have. Working with a financial planner or a tax professional can help you develop

a comprehensive plan to minimize the tax impact of your Roth conversion. In the end, the choice to convert to a Roth IRA in your 70s should be based upon a careful look at your current finances. You should also consider your future income needs and long -term goals. If the upfront tax and the cost is too high and would strain your finances,

it may be wise to forgo a conversion or consider a smaller partial conversion instead. Another factor that can make the decision to do a Roth conversion in your seventies less clear cut is the uncertainty surrounding future tax rates. Roth IRAs often benefit big if tax free withdrawals in retirement, but predicting

Future tax rates is hard. There might be years or even decades away. Today’s rates could be lower in the future than they are today. This would make the tax -free benefit of a Roth IRA less valuable. If you convert much of your traditional IRA to a Roth today, paying taxes at current rates, but if tax rates decrease later, you may end up having paid more.

Danny (12:14.862)

and taxes than you needed to. Also, if your income decreases after your Roth conversion, you could find yourself in a lower tax bracket than when you made the conversion. In this scenario, the benefit of the Roth conversion would be diminished as you would have paid taxes at a higher rate than you would have otherwise been subject to. Given this uncertainty, it’s critical to weigh the potential risk and rewards

of a Roth conversion carefully. Don’t try to predict future tax rates. Instead, build flexibility into your retirement income plan. Do this by having a mix of both traditional and Roth IRA accounts. Diversifying can help you adapt to the tax changes. It will let you make the most of your savings no matter what comes at you. Consider your finances and your goals

when evaluating the impact of future tax rates on your Roth conversions. You may want to leave a tax -free legacy to your beneficiaries, or you might need more control over your retirement income. In these cases, the benefits of a Roth conversion may outweigh the risk. The risks come from uncertainty about future tax rates. So how do you ultimately decide whether a Roth conversion is right?

for you in your 70s. As we’ve seen, there’s compelling arguments on both sides of the equation. To help my clients navigate this complex decision, I always come back to one simple litmus test. Do you want to pay the taxes on your IRA now? Or do you want the beneficiaries to pay the taxes later? Ultimately, someone will have to pay the taxes on the funds

and your traditional Irish.

Danny (14:15.566)

It’s just a question of who and when. By converting to a Roth IRA, you’re choosing to pay the taxes now. In return, you get tax -free withdrawals later and the ability to leave a tax -free legacy to your loved ones. If you can pay the upfront cost of a conversion without harming your lifestyle or draining your savings and you value the flexibility

of the estate planning benefits that it provides, then a Roth IRA conversion may be right for you. But if you’re worried about the immediate tax impact or uncertain about future tax rates, or if you lack the cash to cover the extra tax, then it may be best to stick with your traditional IRA or consider those partial Roth conversions that we talked about. In the end,

The choice to convert to a Roth IRA in your 70s is personal. It depends upon your money, your aims and your values. There’s no one size fits all answer or age cutoff when it comes to Roth conversions. This is where working with a trusted financial planner can be invaluable. An expert can help navigate your situation. They can weigh the pros and the cons of a Roth conversion in the context

of your overall retirement and tax plan. Then they can help you make an informed decision that fits your long -term goals. At our firm, we specialize in helping people just like you plan for and enjoy a secure, comfortable, and fulfilling retirement. We take the time to get to know you personally, understand your unique needs and goals.

and then develop a customized retirement plan to help you achieve them. Remember, retirement planning is not a one -time event. It’s an ongoing process. It needs careful thought and regular review. Stay proactive, stay informed, and work with a trusted advisor. And you can make the most of your hard -earned savings. And enjoy the retirement

Danny (16:42.382)

you’ve always dreamed of. So whether you’re in your seventies or just starting to think about retirement, take control of your financial future today. Don’t hesitate with the right planning and guidance. You can achieve the security and flexibility and the peace of mind you deserve. Thanks for today and we’ll see you in our next videos. Thank you for listening to another episode of the Limitless Retirement Podcast.

If you want to see how Goodorf Financial Group can help you get the most out of your money, go to goodorffinancial .com forward slash get started. This is where you can schedule a 20 minute call to see how our firm can help prepare a free retirement assessment. Please remember nothing we discuss on this podcast is intended to serve as advice.

You should always consult a financial, legal, or tax professional that is familiar with your unique circumstances before making any financial decisions.

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