Retirement: Why Roth Conversions Only Work For 0.2% Of Retirees

https://www.youtube.com/watch?v=VHvS4sxk9Ng

Dan O. shared this video with me, and I thought it was pretty good.

I'm 10 months into retirement. I'm not collecting Social Security yet, so my income is a pension, my wife's part-time income, and ad-hoc 401k withdrawals. I would say my 2025 income is going to be about as low as it's ever going to be. Seems to me, 2025 would be a good year to do a Roth conversion. The video says, "probably not." Why? For me, the hang-up is not having the post-tax savings on hand to pay the taxes on a Roth Conversion. Yes I could withdrawal enough pre-tax 401k funds to cover the taxes too, but quite a few videos on the subject of Roth conversions say not to do this.

Feedback

I received a few replies to this note and thought I should share them.

John A.: Boo. Non-Roth is an heir nightmare. Great for the oldies, sucks for the heirs. Man up and pay your taxes, don't pass RMD's to your unsuspecting kids.

Mark: You make a good point. There are people who plan to "die with zero", and then there are those who will be leaving assets for their children. Those two groups probably need to look at this differently.

John A.: I submit there is a third group - "die with zero taxable." That's the one I'm in.

Bill K.: The 91% (retirees with < $500,000 in assets) surprised me. I expected to see many more in the middle bracket. For me; RMDs and related taxes will be an issue in a few years. Roths are not subject to rmd. Whenever i can convert to Roth with a very low tax hit I will do so. My income this year is VERY low, so have done a conversion. I will reexamine next year again. And Of course there is the no tax on gains in a Roth.

Allen A.: Good video. After thorough analysis with my own monster spreadsheet and financial advisor, I chose not to convert. Besides fear, some financial advisors emphasize minimizing taxes rather than maximizing after-tax value. We already got the tax break with pre-tax 401k contributions.