Ask an Advisor: We're 70 With $1.4M in an IRA and $99k in Retirement Income. Is a Roth Conversion Still an Option?


Steven Jarvis, CPA
Steven Jarvis, CPA

My wife and I are 70 years old. We’ve paid off everything, including the house. Between my pension of $29,000 and Social Security, we’re getting a gross of $99,000 a year in income, which is more than enough. Our current savings in our brokerage account are $700,000. Our individual retirement account (IRA) totals $1.4 million. Our Roth is worth $400,000. We both anticipate living to age 90. At our age, is it too late to do a Roth conversation?

-Anonymous

The short answer is no. There is no age cap on your ability to convert to a Roth.

There is also no earned income requirement to convert to a Roth. As long as you have a balance in an IRA, in theory, you can keep converting to a Roth as long as you like.

The bigger question is this: Does converting to a Roth further your goals for the legacy of your wealth?

This should be the starting place before beginning a Roth conversion strategy regardless of your age. But it becomes particularly important when you are considering Roth conversions as you approach and start taking required minimum distributions (RMDs).

Most articles and conversations around converting to a Roth will focus on the years between retirement and taking RMDs. Those years can present a fantastic opportunity to convert IRA dollars to a Roth. But they are not your only opportunity. Answer this question: What do I want to happen to my wealth when I die? The answer is in the details. Here’s how to think through this strategy.

A financial advisor may help you understand how to manage the tax repercussions of a Roth conversion.

An Argument Against a Roth Conversion

Ask an Advisor: Is It Too Late to Convert to a Roth?
Ask an Advisor: Is It Too Late to Convert to a Roth?

On one end of the spectrum, let’s assume that all of your wealth will be given to your favorite charity when you die. If a qualified charity receives your IRA when you pass away, there will be no taxes due, and you should strongly consider not converting any of your IRA balance to a Roth during your lifetime.

In that case, converting to a Roth would be choosing to pay taxes that you could otherwise never have to pay.

A Case for a Roth Conversion

The opposite extreme would be if your goal is to leave all of your wealth to your children, grandchildren or other loved ones – and to make sure that they never have to worry about paying taxes on those dollars.

In this case, an argument could be made for attempting to convert every last dollar of your IRA balance to a Roth before you die. That way, your beneficiaries will receive an enormous tax-free pie, and the IRS doesn’t get to share a single slice. This may not result in the most tax savings, but it would be the best way to make sure your beneficiaries don’t worry about taxes.



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