I'm 65 With $750k in an IRA and Already Taking Social Security. Is a Roth Conversion Still an Option?

Meeting with a financial advisor can provide clarity on complex moves like Roth conversions.

Converting a $750k IRA

A major concern in converting a $750,000 IRA balance at once would be the significant tax bill that would accompany such a transaction. Completely a Roth conversion of that size would push the person into the 37% marginal tax bracket.

If you’re a single filer and your Social Security income isn’t high enough to be taxed, adding $750,000 to your current income could trigger about $238,000 in extra taxes, using the 2023 tax brackets. Going slowly with $75,000 converted per year over 10 years reduces the tax hit each year by keeping your taxable income in the 22% bracket.

Here’s how those scenarios might play out, assuming you are a single filer and your Social Security income is less than $25,000 so escapes taxation:

Scenario 1: Converting $750,000 All at Once

Size of Roth conversion: $750,000
Tax bracket: 37%
Total Federal income taxowed: $237,831

This option leaves you with a massive tax bill but around $512,000 in your new Roth IRA, which you’ll eventually be able to withdraw tax-free.

Scenario 2: Annual $75,000 Conversions Over 10 Years

Size of Roth conversion: $75,000 (x10)
Tax bracket: 22%
Total Federal income taxowed: $88,000 over 10 years

Keep in mind that funds left in your IRA will continue to grow while you’re executing these annual conversions, so the IRA likely won’t be empty by the time you have to start taking RMDs. However, the RMDs you’ll have to take by then will be much smaller so won’t incur nearly as much taxation compared to leaving the money in a traditional IRA.

A third option is to leave the money unconverted in your IRA and start taking RMDs once you turn 73, paying taxes on them as you go. However, this could leave you paying higher taxes in retirement until your death. But if you need more help taking stock of your different options, this free matching tool can pair you with a fiduciary advisor.

Making the Call

A couple looks over their finances and decides to convert their traditional IRA into a Roth IRA.

You may not find that one course of action is clearly superior. Factors to consider when deciding if and how much Roth conversion makes sense:

Compare current vs. future income tax rates
Account for RMDs and estate plans
Weigh healthcare and other senior costs
Assess tax impact on heirs
Model multi-year scenarios

Strategic partial Roth conversions tailored to your situation may provide the most tax advantages for people with large IRA balances.

One major limitation to Roth conversions is that they cannot be reversed. If tax rates decline later or you need converted funds sooner, you could regret having locked in taxes now at a higher rate. Inheritance plans may also change. Do a thorough multi-year analysis before committing to convert.

Run your own Roth conversion scenarios first or enlist the help of a financial advisor to help you make these important calculations.

Bottom Line

At 65 or any age, while parts of your retirement finances remain unsettled, limiting Roth conversions to small chunks spread over years offers flexibility. This balances immediate tax costs against future tax savings for you and your heirs. As with most money moves in retirement, prudently assessing your multi-year tax picture first is key.

Retirement Planning Tips

Instead of guessing if converting your IRA makes sense, talk to a financial advisor who can crunch the numbers. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep in mind that there are income limitations for contributing to a Roth IRA. In 2024, the IRS doesn’t permit single filers with an adjusted gross income (AGI) above $87,000 and married couples who file jointly with an AGI above $240,000. However, backdoor Roth IRAs can help high earners legally circumvent these income limits.
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