Converting to a Roth IRA: What Are the Pros and Cons?

By Chris Duderstadt

May 26, 2023

Converting to a Roth IRA: What Are the Pros and Cons?

Key Points – Converting to a Roth IRA: What Are the Pros and Cons?

  • No Future Tax, No Future Tax, No Future Tax
  • Unintended Consequences of Converting to a Roth IRA
  • Dean and Bud Share Their Pros and Cons of Converting to a Roth IRA
  • Getting Some Valuable Insight from America’s Roth IRA Expert, Ed Slott
  • 12 Minutes to Read | 22 Minutes to Listen

What Are Some Pros and Cons of Converting to a Roth IRA?

Dean Barber and Bud Kasper always have a blast when they attend Ed Slott’s Elite IRA Advisor GroupSM workshops. At the workshop they attended in April in Baltimore, they reviewed several things to consider before doing Roth conversions. Dean and Bud are going to give a brief recap of what they discussed at the workshop as they go over pros and cons of converting to a Roth IRA on America’s Wealth Management Show.

Bud Loves to Talk About Converting to a Roth IRA

Those who know Bud know that he can go on and on about the pros of converting to a Roth IRA. His main point is that any time he can eliminate Uncle Sam out of a client’s life, he knows he’s doing them some good. It’s hard to argue with where Bud’s heart is at and he does make a great point. But it’s just important to thoroughly understand how a Roth conversion can impact you and make sure that there aren’t any unintended consequences of converting.

Dean and Bud’s Pros and Cons of Converting to a Roth IRA

Dean and Bud dive deeper into the pros and cons of converting to a Roth IRA by reviewing lists of each that are included in Ed Slott’s Elite IRA Advisor GroupSM manual. But first, they’re going to list their top three reasons to convert to a Roth IRA and top three reasons to not convert to a Roth IRA. Bud nearly finished his list of pros of converting to a Roth IRA before Dean could say, “Roth IRA.”

Bud’s Top Three Reasons to Convert to a Roth IRA

  1. No future tax.
  2. No future tax.
  3. And no future tax.

Well, that’s obviously only one reason. But it’s a very big reason to convert to a Roth IRA.

“I feel that strongly about that. We have so few things that we can use so effectively in eliminating federal income tax on what we have in our in our various accounts.” – Bud Kasper

Dean’s Top Three Reasons No to Convert to a Roth IRA

Dean is going to play the role of devil’s advocate here by giving three reasons to not convert everything to a Roth IRA.

1. Qualified Charitable Distributions

If you convert to a Roth IRA, you must pay taxes on the amount you convert. If you leave some money in the traditional IRA, you can get that money out tax-free if you’re charitably inclined by utilizing QCDs if you’re 70½ or older.

Bud agrees with this. For those who are charitably inclined, our CFP® Professionals estimate how much you would need to qualify for a QCD in a given year. We leave that amount in the taxable account and then the remainder of it can go over to the Roth IRA.

2. Being Thrown into a Higher Medicare Bracket

You may not want to convert to a Roth IRA if it throws you up into a higher Medicare bracket. We’re talking about the IRMAA tax.

For those people who aren’t aware of it, the IRMAA tax is a special tax for when your income is too high in retirement that increases the amount of your Medicare Part B premiums. That can be detrimental for a couple of years.

“That may be something that causes a person to pause say, ‘You mean that I’m going to spend another $12,000 a year on Medicare premiums by converting this? I don’t know if that’s a good idea.’” – Dean Barber

Most people don’t realize that there’s a limit where IRMAA suddenly increases. That’s based on what your income is.

3. Not Having Money to Pay the Tax Yet

Dean’s third reason to not convert to a Roth IRA is if you don’t have enough money to pay the tax yet. But Dean says there is a caveat to that.

“I’m not going to say that you shouldn’t convert to a Roth IRA every time that you don’t have the money to pay the tax. I can give you one reason why you would still want to convert to a Roth IRA. It has to do with the Affordable Care Act. At certain income limits, if you’re retiring prior to 65, you want to qualify for the subsidies under the Affordable Care Act so that you potentially get your health care at very low or no cost. Well, there’s one income source that doesn’t count toward income when you’re looking at your tax return to determine whether you qualify for the subsidies. It’s Roth IRA distributions because they’re tax-free.” – Dean Barber

ACA Subsidies Explained

Here’s a quick example. Let’s say that you’re going to retire at 62. That means that you have three years that you need to figure out how to provide yourself health care until you become eligible for Medicare. To qualify for the ACA subsidies, you calculate how much you’d want to convert.

Even though you know that you’re going to be pulling that money out during the first three years and it’s not going to sit in there for a long time, you’re going to pay the tax on the conversion out of the IRA itself while you’re working to allow you to qualify for thousands of dollars a year worth of subsidies. In most cases, the taxes that you pay will be far less than the distributions that you would make on your IRA and the increased health care costs.

“As you look at retirement planning and tax planning, that’s a strategy that most people miss,” – Dean Barber

Bud’s Counterpoint

Bud thought that was a great point by Dean as well, but now it’s his turn to play devil’s advocate.

“For example, if you have money in an IRA and you’re pulling it out, it’s taxable. But it’s also going to go in on the Social Security taxation formula, which could make your Social Security taxable. If you have a Roth account, that doesn’t factor into the calculation. Therefore, 100% of your Social Security remains tax-free.” – Bud Kasper

Tax Rates Are Scheduled to Go Up in 2026

Before we dive into the pros and cons of converting to a Roth IRA that Ed shared, we want to share a huge pro that Dean and Bud whole-heartedly agree on. When our CFP® Professionals are meeting with people for the first time, they’ll oftentimes see that those people have only saved to tax-deferred accounts. We want those people to realize that tax rates are scheduled to go up on January 1, 2026, because the Tax Cuts and Jobs Act will be sunsetting. That’s a big reason to consider converting to a Roth IRA in the next two-and-a-half years.

Some Pros and Cons of Converting to a Roth IRA from Ed Slott’s Elite IRA Advisor GroupSM Manual

Ed has outlined three questions that you need to ask yourself when you’re considering whether to convert to a Roth IRA.

  • When will I need the money?
  • Where will the money come from to pay the tax?
  • What do I think future tax rates will be?

Ed’s Pros of Converting to a Roth IRA (Can You Guess No. 1?)

Many of the pros and cons of converting to a Roth IRA that Dean and Bud have listed were also on Ed’s list. That includes the first no future taxes, which is Ed’s No. 1 pro. Let’s keeping going on Ed’s list of pros.

AGI Not Impacted

Roth distributions won’t increase the average gross income to make the investment income subject to the 3.8% health care surtax. The 3.8% health care surtax applies to investment income. It can come on top of your capital gains.

“In other words, if you had capital gains and you think you’re going to only pay 20% tax, if your income is too high, you’ll also pay that an additional 3.8% surtax. Well, guess what doesn’t affect that? Distributions from the Roth.” – Dean Barber

No RMDs for the Original Roth Owner

Ed’s next reason to convert to a Roth IRA is one Dean and Bud have discussed quite a bit this year following SECURE 2.0 going into effect. It’s that there are no Required Minimum Distributions for the original Roth owner.

When people don’t have a Roth and they’re in a traditional and you must take out those distributions, those distributions can possibly increase your tax bracket. Remember how we mentioned the IRMAA tax? Some people will become very shortsighted on that.

“They’ll think, ‘For two years. I need to do this.’ But you can’t just stop there and say you don’t want to pay that additional IRMAA tax. You need to fast forward to when RMDs begin. Then, look at what is your taxable income going to be from 73 and on. Are you going to be in a higher IRMAA bracket for the rest of your life? Then, compare that to the higher IRMAA bracket for just two years.” – Dean Barber

Bud was with a client the other day who was considering a $130,000 Roth conversion. Even in consideration that the IRMAA tax would increase by doing that conversion, it was their belief that it was worth doing for a two-year period because the net result moving forward was no taxes.

Understanding the SECURE Act’s Rules

We mentioned have we’ve talked about SECURE 2.0 a lot this year. Well, we’re still talking a ton about the original SECURE Act too. The SECURE Act forces all the money to come out of a traditional or Roth IRA within 10 years of the original account owner’s death. One of the stipulations in the SECURE Act can get a little bit confusing is whether that original account owner died before or after their Required Beginning Date. The traditional IRA has a Required Beginning Date of April 1 of the year following the year that you turn 73.

“If somebody dies after that Required Beginning Date and they have a traditional IRA, that beneficiary needs to start making distributions in year one and has to follow the Required Minimum Distribution table. And then all the money must be out at the end of 10 years.” – Dean Barber

No Required Beginning Date with Roth IRAs

That leads right into another point on Ed’s pros list. The Roth IRA has no Required Beginning Date because there isn’t a Required Minimum Distribution. So, your beneficiaries don’t have to start draining that IRA. They can allow that tax-free growth to go for another 10 years beyond your death. And when it comes out, there are no taxes.

Required Minimum Distributions are covered in great detail in our Retirement Plan Checklist and Tax Reduction Strategies guide. Our Retirement Plan Checklist includes 30 yes-or-no questions to gauge your retirement readiness as well as age-based and date-based timelines of things to consider leading up to and going through retirement. You can download your copy of the Retirement Plan Checklist below.

Converting to a Roth IRA

Retirement Plan Checklist

Converting to a Roth IRA is one of the most popular tax reduction strategies out there. Our Tax Reduction Strategies guide highlights how important it is to have a tax plan within your overall financial plan. Working with a CFP® Professional that works alongside a CPA can make a world of difference throughout the financial planning process. Download our Tax Reduction Strategies guide below to see what tax planning strategies might work best for you.

Converting to a Roth IRA

Tax Reduction Strategies

A Few More of Ed’s Pros to Convert to a Roth IRA

Now, let’s get back to a few more points on Ed’s list of pros. Distributions of unearned income to children under age 18 are taxable. Roth IRA and distributions are income tax free. So again, no taxes.

The Roth IRA makes a better trust beneficiary free because qualified distributions are income tax free. There’s no taxation on the distributions at trust tax rates, which are onerous. You hit that top bracket in the trust at $14.450.

Roth IRAs and Estate Taxes

Another one of Ed’s reason to convert to a Roth IRA is that your taxable estate is reduced by the income tax paid on the amount converted. If you’re in a scenario where you’re going to be subject to estate taxes, this can help with reducing the estate tax liability as well. The estate tax brackets are extremely high right now, but…

“They’re going to get cut in half when the Tax Cuts and Jobs Act expires. There are a lot of people today who think that they’re not going to be subject to that. How many times have they changed the estate tax laws? I don’t know the exact number, but it’s multiple times. It’s been permanently repealed three times.” – Dean Barber

Dismissing the Uncertainty of Future Tax Rates

We’ve already partially covered Ed’s second to last point on his pros list to convert with explaining that tax rates are scheduled to go up in 2026. His final point is that paying the tax now takes out the uncertainty of future tax rates.

“Now, you’re in control. You crossed over that barrier and you’re in a position where you don’t have to worry about income tax off any of that income for the rest of your life and for your spouse’s life as well.” – Bud Kasper

Ed Final Pro of Converting to a Roth IRA

We have one final point on Ed’s reasons to convert to a Roth IRA before we get to some of his reason not to convert. This is kind of complicated, but when you’re contemplating a transaction that might be a prohibited transaction, using Roth funds will lessen the impact if it turns out to be a prohibited transaction since there are no income taxes on the Roth distributions.

So, what is an example of a prohibited transaction? Let’s hear what Dean has to say on that.

“I’ll give you a perfect example. There are some people that believe that they should own real estate inside of their IRA. It can’t be property that you live in. And it can’t be property that you utilize for a personal benefit or any property in your family uses for a personal benefit. It must be an investment property. First, a prohibited transaction would be somebody buying a house in Florida and using it as a rental property for eight months out of the year but stay there for the four months. That’s a prohibited transaction. You can’t do it.” – Dean Barber

If you do that with a traditional IRA, you blow up your entire IRA and everything becomes taxable all at once. Well, if you do that with a Roth IRA and you get caught, it’s prohibited transaction. But there are no tax implications.

A Few of Ed’s Reasons to Not Convert to a Roth IRA

Now, let’s review some of Ed’s reasons to not convert to a Roth IRA. His first reason is an obvious one. The taxes are due now on the amount that is converted. Some people can’t get past that.

“Our CPAs will create a spreadsheet on the possibility of doing conversions. Then, we explain to the client each of the outcomes so that they can participate into how much they may or may not want to convert in one year.” – Bud Kasper

When we’re taking people through our Guided Retirement System, we’ll show the taxes that you need to pay to convert to a Roth IRA. Then, we’ll show the taxes over your lifetime and assume a life expectancy that you want to assume. And then if you don’t convert, we’ll show you how much is going to be in your traditional IRA, taxable accounts, etc. with your life expectancy applied. And what’s the net benefit going to be to your beneficiaries?

“If you do convert, we’ll show you how much is going to be in Roth. If you don’t convert everything, how much is going to be in traditional and taxable, and then how much is going to go to your beneficiaries net of taxes. You need to take the full picture into consideration. And you can’t stop with your life expectancy. You need to go 10 years beyond—remembering what we discussed about SECURE 2.0—to really understand the impact of the tax savings.” – Dean Barber

Remember that with tax planning, the goal is to pay as little tax as possible over your lifetime, not just in one year. And it’s not just thinking about taxes in your lifetime either. You need to keep your spouse and other beneficiaries in mind too.

Back to the ACA Tax

Another one of Ed’s reasons not to convert was that.the amounts converted are included in your AGI, and they could make other investment income subject to the 3.8% surtax for the ACA. So, Ed and Dean are in agreement there.

Needing the Tax Deduction Today

The last reason of Ed’s to not convert ties right into Dean’s third reason. That’s if you need the tax deduction today.

“I can give many examples on this. In your peak earning years, you may want to do the deductible contribution to your 401(k) and then convert after retirement. Ultimately. you want tax-free income. I think there are more compelling reasons to convert than not to convert. But it’s not simple. It’s complex. Everyone is going to be in a different situation. Before you convert or decide not to convert, you need to go through the exercise we discussed with one of our CFP® Professionals and CPAs.” – Dean Barber

Should You Convert to a Roth IRA?

If you want to see how that pros and cons of converting to a Roth IRA apply to you personally, you can get on your way to finding out by using our financial planning tool. This is the same tool that our CFP® Professionals use with our clients. We’re giving you the opportunity to use it at no cost or obligation to begin building a plan that’s unique to you. You can dive right in by clicking the “Start Planning” button below.


If you have any questions as you’re using our tool, please don’t hesitate to reach out to us. We can go through your questions during a 20-minute “ask anything” session or complimentary consultation with one of our CFP® Professionals and/or CPAs. Just click here to schedule an in-person, virtual, or phone meeting. We look forward to hearing from you soon and finding a way to give you more confidence, freedom, and time in retirement.

Converting to a Roth IRA: What Are the Pros and Cons? | Watch Guide

00:00 – Introduction
02:10 – Dean & Bud’s Top 3 Reasons to Convert (or Not)
08:04 – Ed Slott’s Reasons to Convert (or Not)
20:44 – What We Learned in Today’s Show

Resources Mentioned in this Episode


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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.