5 Reasons NOT to Convert to a Roth IRA

By Chris Duderstadt

May 22, 2024

5 Reasons NOT to Convert to a Roth IRA

Key Points – 5 Reasons NOT to Convert to a Roth IRA

  • There Can Be Unintended Consequences from Doing Roth Conversions
  • Considering Your Current and Future Tax Rate
  • Don’t Forget About Your Beneficiaries When Deciding Whether to Do a Roth Conversion
  • Understanding QCDs and RMDs
  • 8-Minute Read | 23-Minute Watch

Are You a Rothaholic?

We’ve published a lot of content that highlights how Roth conversions can be a helpful tax planning strategy for someone who is preparing for or going through retirement. However, Roth conversions aren’t for everyone. There are also reasons not to convert to a Roth IRA.

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If you find yourself frequently looking for opportunities to contribute or convert to Roth, you could be a Rothaholic. And that’s not a bad thing! One of our managing directors, Bud Kasper, CFP®, AIF®, is a self-proclaimed Rothaholic and even founded our Rothaholics Club. Bud is passionate about the concept of creating a tax-free retirement, and hopes you join him in being a Rothaholic!

Join Our Rothaholics Club!

But as much as Bud loves the tax-free aspect of the Roth, he understands that there are reasons not to convert to Roth IRAs. We’re going to review five reasons not to convert to Roth IRAs shortly, but we first need to explain the Roth conversion process and why it can be very appealing.

What Is a Roth Conversion?

A Roth conversion is the process of moving funds from a traditional IRA to a Roth IRA. Contributions to traditional 401(k)s or IRAs are tax-deferred. That means that you won’t be required to pay taxes on those funds until you withdraw them.

You’re required to pay taxes on the contribution when you contribute to a Roth 401(k), but then the earnings (and distributions from Roth IRAs) will be tax-free. You might be wondering, “Why would I want to pay taxes sooner than I have to?” That’s a great question. One of the main reasons to consider Roth 401(k) contributions is if you know you’ll be in a higher tax bracket in the future.

What Is Your Current and Future Tax Rate?

Some people assume that they’ll be in a lower tax bracket in retirement. However, that feat will be harder to achieve in the near future if the tax rates outlined within the Tax Cuts and Jobs Act sunset as scheduled after 2025.1 If the current tax rates sunset when the clock strikes midnight on December 31, 2025, the higher tax rates of 2017 would go back into effect in 2026.

So, if you have most of your retirement income in traditional 401(k)s or IRAs, understand that if you withdraw from those accounts after 2025 that you may be taxed at higher rates than today. That’s where Roth conversions can come into play. When converting funds from a traditional IRA to a Roth IRA, you’re required to pay taxes on the conversion.

At Modern Wealth, Roth conversions are something we look at and perform regularly for clients. We imagine most people would rather pay taxes on their IRAs while tax rates are lower (before 2026) and then capture the tax-free following the Roth conversion. Does that sound ideal to you? Roth conversions are a tax planning strategy that should always be considered. But now, let’s share some reasons not to convert to a Roth IRA.

1. If You Think Your Tax Rate Will Be Lower in the Future

Yes, we just explained why it could be more unlikely for this to be the case. But you never know if Congress could change its mind about whether parts of the TCJA will still sunset as scheduled.

One reason that some people think that they’ll be in a lower tax bracket in retirement is because they anticipate spending less. While everyone’s retirement plan will look different, we usually encourage people to front load their spending in retirement while they’re still healthy and able to travel. As you’re entering retirement, you could also have a mortgage to finishing paying off or have a mortgage on a summer/winter home that you’ll be paying off during retirement.

Oftentimes, your spouse isn’t the only other person you need to consider as you’re planning for retirement during your peak-earning years. If you have children, can they support themselves financially yet? And if your parents are still living, have they saved enough money to get to and through retirement? This is why it’s important to create a spending plan for retirement.

Eventually, you might not have the energy to travel as much and maybe you won’t have a mortgage. Having fewer expenses means that you likely won’t need to withdraw as much money from your IRAs, which would result in you being in a lower tax bracket.

This is why it’s critical to ask yourself whether you’ll be in a higher or lower tax bracket in the future as you’re planning for and going through retirement. Roth conversions could make a lot of sense for you if you know you’ll be in a higher tax bracket. On the flip side, being in a lower tax bracket is one reason not to convert to a Roth IRA.

Don’t Forget About IRMAA

Speaking of tax brackets, it’s also important to understand how converting to a Roth IRA can potentially throw you up into a higher Medicare bracket. This is what’s referred to as the Medicare Income-Related Monthly Adjustment Amount—aka, the IRMAA tax. It’s a special tax that can increase the amount of your Medicare Part B premiums if you exceed certain income limits.

There’s a two-year lookback with IRMAA. So, in 2024 it’s actually based off your 2022. Click here to see the 2024 IRMAA brackets.2 Make sure you’re aware of where you land within the IRMAA brackets before considering a Roth conversion. Having to pay a substantial amount more in Medicare premiums following a Roth conversion is another reason not to convert to a Roth IRA.

2. Your Required Minimum Distribution Won’t Force You into a Higher Tax Bracket

Some of you might be thinking, “What are Required Minimum Distributions?” Let’s answer that first. Required Minimum Distributions (RMDs) are the minimum amount that you’re required to take out of your retirement account or IRA each year. As of January 1, 2023, when the SECURE Act 2.0 went into effect, the required beginning date for RMDs went up from 72 to 73. It’s set it increase to 75 by 2033.

This second reason not to convert to a Roth IRA can tie right in with the first reason. Do you think your expenses will be lower in a few years and don’t plan on spending as much? If that’s the case, you could end up being in a lower tax bracket in the future. But even if you don’t plan on spending much during retirement, RMDs can force you to take money from your IRAs and, in turn, bump you into a higher tax bracket.

Planning for RMDs Before and After Retirement

Let’s say that you and your neighbor are both turning 73 in 2024. While you’re the same age, you likely won’t have the same RMD amounts. Even if you have roughly the same amount of retirement savings, it’s not about how much you’ve saved, but where you’ve saved to. If most of your retirement savings are in traditional IRAs, you could be facing some sizable RMDs. Meanwhile, if your neighbor has all their retirement savings in after-tax accounts, they won’t have RMDs.

When you factor in your annual RMD along with your other retirement income, will that push you into a higher tax bracket? If that’s the case, Roth conversions are a strategy to consider to reduce your RMDs and overall taxable income. If you don’t anticipate that your RMDs will affect your amount of taxable income, that could be a reason not to convert to a Roth IRA.

3. If You’re Planning to Make Qualified Charitable Distributions

Is charitable giving something that’s very important to you? If so, that may be another reason not to convert to a Roth IRA. Let’s talk about Qualified Charitable Distributions (QCDs). When you turn 70½, you become eligible to donate up to $105,000 directly from a traditional IRA to a qualified charity without it showing up on your tax return.

But wait. That’s not the only benefit of doing QCDs. QCDs also count toward your RMDs. For example, let’s say that you have a $50,000 RMD coming up, but you plan to donate $30,000 this year to your favorite qualified charity. As long as you’re 70½ or older, making that $30,000 donation directly from your IRA won’t show up on your tax return AND it will reduce your annual RMD to $20,000 for that year.

4. Not Having Money to Pay the Tax on the Conversion

This might seem like an obvious reason not to convert to a Roth IRA. But let’s say that you typically do Roth conversions and like giving to charity. You need to make sure that you have enough in your traditional IRAs to do your charitable giving through QCDs and then still have enough pay the tax any Roth conversions you want to do.

Are You Planning to Retire Before 65?

Here’s another example. Let’s say that you’re planning to retire at 62 and have three years until you’re eligible for Medicare. If you’re looking into doing Roth conversions but don’t have enough in your IRAs to pay the tax, converting could still make sense. This is because you can potentially qualify for subsidies under the Affordable Care Act and still get health care at a very minimal cost.

If you’re trying to qualify for those ACA subsidies, which are based on certain income limits, remember that Roth IRA distributions won’t count toward that income because they’re tax-free. So, even if you think you have a reason not to convert to a Roth IRA, there could still be a reason to convert anyway. This is another example why it’s critical to work with a CFP® Professional who works alongside a CPA that can review your financial plan for potential tax planning opportunities (such as Roth conversions).

In some cases, Roth conversions can make a world of difference as you’re planning for and going through retirement. But in our instances as we’ve explained, they might not. We also illustrated this in our Roth Conversion Case Studies white paper. Download your copy below as you’re considering whether Roth conversions are a logical tax planning strategy for you to consider.

Reasons Not to Convert to Roth IRA

Roth Conversion Case Studies

5. Life Expectancy

Will you be turning 75 after December 31, 2032? Again, 75 will be the RMD by 2033 unless Congress changes what is currently written with SECURE 2.0. The RMD age keeps increasing. When the SECURE Act became law in 2020, it increased from 70½ to 72. It increased again to 73 in 2023 when SECURE 2.0 became law and is set to go up again to 75 by 2033.

Do you think you’ll live to be much older than 75? If you don’t expect to live well into your 80s or beyond, your RMDs might not be something you need to be as concerned about. We’ll discuss this next.

This Decision on Whether to Do a Roth Conversion Isn’t Just About You

The beneficiaries that will be inheriting your IRAs will need to be prepared to take those RMDs when you die. When your beneficiaries inherit your IRAs, they’ll be required to empty the accounts within 10 years after your death. If you have a lot of money in your IRAs that your children and/or grandchildren will inherit and don’t have a long life expectancy, Roth conversions can make a lot of sense.

But let’s say that you don’t plan to leave your inheritance to your heirs and instead plan to leave it to your favorite charities. If that’s the case, the charity won’t need to pay taxes on your IRAs when they inherit them. If you don’t have a long life expectancy, there wouldn’t be any reason to do Roth conversions in this situation because you’d just be paying unnecessary taxes.

Obviously, no one knows exactly how long they’ll live. This makes planning for RMDs tricky (and very important). Let’s say you think you’ll live to be 77 but live until 87. You need to understand that your RMD amounts increase as you get older.

Hopefully you can start to see how planning for RMDs correlates directly to planning for Roth conversions. It will depend on your situation whether Roth conversions are an impactful tax planning strategy for you or if one (or more) of these reasons not to convert to a Roth IRA applies to you.

Do You Have Any Questions About the Reasons Not to Convert to a Roth IRA?

As you can see, there’s a lot to mull over when deciding whether you should or should not convert to a Roth IRA. If you have any questions about whether it makes sense for you to convert to a Roth IRA, schedule a conversation with our team below.

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We mentioned earlier why it’s critical to work with a CFP® Professional and CPA together when considering a Roth conversion. But what if you have beneficiaries that are going to be impacted by your decision to convert or not convert to a Roth IRA? Working with an estate planning specialist in that situation is also important.

Well, at Modern Wealth, we have a team of professionals that consists of CFP® Professional, CPAs, estate planning specialists, CFAs, and risk management specialists. Deciding whether to do a Roth conversion is a very important decision to make within your overall financial plan. We’re ready to walk you through that decision and show you that we’re committed to giving you confidence that you’re doing the right things with your money, freedom from financial stress, and time to do the things you love.

5 Reasons NOT to Convert to a Roth IRA : Watch Guide 

00:00 – Introduction
01:49 – The 5 Reasons Not to Covert to a Roth IRA
04:43 – 1. You Think Your Tax Rate Will Be Lower in the Future
06:47 – 2. Your RMDs Won’t Force You Into a Higher Tax Bracket
10:05 – 3. You’re Planning to Make QCDs
12:04 – 4. You Don’t Have the Money to Pay the Tax
16:19 – 5. Life Expectancy
20:49 – What We Learned Today

Resources Mentioned in This Article

Articles and Videos

Past America’s Wealth Management Show Episodes


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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.