Analysis Compares Traditional IRA and Roth Conversion Strategies

A financial analysis comparing retirement strategies for couples retiring at age 62 with $600,000 in traditional IRAs shows that strategic conversions can significantly alter future tax liabilities. One scenario involves a couple relying on a pension and leaving their IRA untouched, which results in a balance of $1.03 million by age 73 and a required minimum distribution (RMD) of approximately $39,000.

In contrast, a second couple converts $45,000 annually into a Roth IRA at a 12% tax rate, using outside cash to cover taxes. By age 73, this strategy reduces the traditional IRA balance to $387,000 and lowers the RMD to roughly $15,000, while simultaneously building a tax-free Roth account totaling $639,000.

The Internal Revenue Service mandates these distributions based on birth year, with those born between 1951 and 1959 starting at age 73 and those born in 1960 or later starting at age 75. The analysis notes that while conversions reduce future RMDs, they may increase Medicare premiums or reduce Affordable Care Act subsidies.