The (Surprisingly Narrow) Roth Conversion Window Most Retirees Miss To Save on Taxes
Written by
Lydia Kibet
Edited by
Rebekah Evans
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Retirement doesn’t always mean lower taxes. In fact, you could be in for the biggest tax bills in your 70s when Social Security benefits and Required Minimum Distributions (RMDs) kick in.
However, there’s a small, often overlooked window that can dramatically reduce those future taxes. You can take advantage of this narrow period to move your money out of a traditional retirement account into a Roth to save on taxes.
The Year Between Retirement and Before Social Security Benefits Start
The year when you retire and before Social Security begins is the window that many retirees miss. This is the time when your taxable income is at its lowest and you have so much flexibility in doing Roth conversions. But many retirees notice this when it’s too late.
“Roth conversions provide a great opportunity to pay taxes when it can be done at the lowest possible rates. The best window for this is for individuals who retire in their 60s and delay claiming their Social Security benefits until closer to age 70,” said Wade Pfau, founder of Retirement Researcher. “This may create years with low taxable income, opening up the opportunity to engage in Roth conversions and be better prepared for when RMDs begin later in their 70s.”
According to Matt Hylland, financial planner at Arnold and Mote Wealth Management, you can optimize Roth conversions by timing the conversions with a year you live off cash savings. “Many retirees go into retirement with a large amount of cash. For those that are comfortable spending down their cash, they may be in a position to have little or no income as far as the IRS is concerned and will have ample room in lower tax brackets to perform Roth conversions,” he said.
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