Broker Check

The "Rothification" of Retirement

| June 27, 2023

The Secure Act 2.0 (the “Act”) further delayed the beginning age for required minimum distributions (RMDs). This affords individuals more time to plan for and successfully convert taxable retirement savings to tax-free retirement savings via Roth conversions. I’ve heard this opportunistic landscape referred to as the “Rothification” of retirement.


  • The required minimum distribution (RMD) beginning age has been extended to 73 (for those turning 72 after 2022) or 75 (for those turning 75 in 2033 or later)[1]
  • The components to consider for executing Roth conversions include your age, income and work status (full or part time), when you begin taking Social Security, marital status, after-tax accumulated savings, and time horizon
  • Further delaying the start date for distributions from IRAs and retirement plans allows a longer window for Roth conversions at lower tax rates
  • The most opportune time to convert pre-tax IRA and qualified plan balances to Roth is in the window after you retire and before you start to receive Social Security and RMD distributions
  • Roth accounts afford favorable tax management in retirement, but conversions to Roth accounts require time and dynamic planning to execute successfully

The Act recently pushed back the RMD beginning age from age 72 to 73 (for those turning 72 after 12/31/2022) and will increase to 75 in 2033 (for those turning age 75 in year 2033 or later). Prior to the original SECURE Act, which was enacted in 2019, the RMD beginning age was 70 ½. The delay of the starting age for RMDs allows individuals a longer timeframe to maintain lower income levels and therefore more time to convert pre-tax IRAs and qualified plans to Roth accounts with lower tax liability.

Unlike contributions to Roth IRAs and Roth 401(k)s, Roth conversions, or the process of shifting pre-tax IRA and qualified plan monies into after-tax Roth accounts, do not have income or size limitations. Good tax planning, however, is required to take advantage of the Roth conversion strategy.

Your marginal income tax rate when you convert to a Roth IRA should be lower than your anticipated marginal income tax rate when you take withdrawals. Simply put, if you know you are going to be paying higher taxes in the future, it makes sense to opt to pay lower taxes today. The lower your tax rate at conversion and the longer your time horizon to begin drawing down Roth balances, the more beneficial this strategy is.

Roth accounts (Roth IRAs and Roth 401(k)s) are also not subject to required minimum distributions (RMDs). As the name indicates, RMDs are required distributions from pre-tax IRAs and qualified retirement plans as you age, regardless of your need for the income. Roth conversions therefore reduce taxable RMD income in retirement. It’s important to note that an RMD itself cannot be converted to Roth tax treatment.[2]

In addition to your RMD start age, other important conversion factors include when you will claim Social Security (up to 85% of the benefit is taxable as income), how much after tax savings/investments you accumulate (of which long term capital gains are subject to favorable tax rates), your income and work status (full or part-time), your marital status (Married Filing Jointly tax brackets are much more tax friendly than Single filer tax brackets and the Standard Deduction is twice as generous), and time horizon.

The latest you can delay filing for Social Security is age 70. Therefore, the most opportune time to convert pre-tax IRAs and qualified plans to Roth is in the window after you retire and before you start to receive Social Security and RMD income. The challenge most individuals will need to navigate is how to secure tax efficient liquidity to cover living expenses while you slowly convert pre-tax assets to Roth. As mentioned above, you want to realize a low-income tax rate on conversions to Roth. Spreading the conversions over several years is your best strategy to stay in a lower marginal bracket.

For clients aged 70 ½ or older who are charitably inclined and want to increase Roth account balances, combining qualified charitable distributions (QCDs, which are charitable gifts sent directly from an IRA) with conversions of pre-tax assets to Roth accounts is a strategy to consider. Charitable distributions made directly from your IRA reduce your RMDs dollar for dollar and are excluded from your adjusted gross income for tax purposes in the year the gift is completed.

Alternatively, you can gift after tax investments to charity "in kind" (gifting the actual security itself, not proceeds from a sale) and achieve a charitable deduction while also avoiding realizing capital gains on the gifted securities. Bunching several years’ worth of charitable contributions into one year can provide a large income tax deduction, creating a lower marginal tax rate with which to perform a Roth conversion. Deducting charitable contributions requires itemizing deductions, so make sure your charitable gifts, in combination with other itemized deductions, exceed the Standard Deduction so you receive the tax benefit.

The bottom line is that taking advantage of Roth conversions is a worthwhile pursuit, but it takes multiyear planning, and a good forecast of taxes and future cash flow needs to maximize conversion effectiveness. Not only will converting pre-tax assets to Roth accounts potentially increase what you keep after tax, your future RMD taxable income will be lower, and you’ll have the ability to better manage your income tax bracket in retirement by using tax-free dollars to keep your taxable income within lower marginal brackets.