A Roth IRA conversion involves the transfer of assets from a pre-tax retirement account, such as a traditional IRA or 401(k), to a Roth IRA. There are several reasons why this approach may be appealing to individuals:

Potential Benefits of Roth conversions

• Tax-free growth: With some exceptions on the earnings at the state level, dollars within a Roth account can enjoy tax-free growth at the federal and state levels. If you anticipate you will be in a higher tax bracket in the future, then converting some/all of your pre-tax retirement account assets to a Roth IRA (while you are in a lower tax bracket) may make sense for you. After a conversion, these dollars will likely not be subject to tax again. This allows for greater flexibility within retirement given it avails individuals options in determining the most appropriate accounts to “invade” for spending.
• Estate planning: In many cases, beneficiaries might benefit from inheriting Roth IRAs because they are in a higher tax bracket than their parents were in prior to their passing. So a conversion during the parents’ lifetimes will potentially allow for more of their parents’ wealth to be retained by their family, with less going to the government.
• Required Minimum Distributions: Roth IRAs are not subject to required minimum distributions, unlike most pre-tax retirement accounts (RMDs begin at age 73 for most individuals today). This allows for dollars within Roth IRAs to continue to grow unimpeded throughout retirement.

Back-Door Roth IRA contributions/conversions

For individuals who exceed the Roth IRA contribution income limits imposed by the IRS (phaseouts begin at $150,000 for a single filer and $236,000 for married filing jointly in 2025), a back-door Roth IRA contribution/conversion might be a possibility. Some specific rules might come into play with this strategy so it’s important for the individual to consult an advisor or accountant prior to employing this tactic.

Considerations for Roth Conversions

A few considerations to keep in-mind when converting traditional/pre-tax dollars to a Roth IRA:

• Income tax: You must pay taxes on the amount of a conversion, which will be determined by the tax bracket you are in during the year of the conversion. It is important to be cognizant of whether or not too much additional income will put you into a higher tax bracket.
• Timeline considerations: Individuals who are approaching retirement may need to consider how the immediate tax implications affect their overall retirement plan. These individuals may have different financial priorities than younger/older individuals, and less of an appetite for the additional tax that might emanate from a conversion.
• Financial situation: Individuals with significant pre-tax retirement account balances, or higher expected future earnings, may deem Roth IRA conversions to be appropriate. Conversely, individuals who are approaching retirement, and years in which they’ll have a lot less income, might consider waiting until retirement before they contemplate “adding” a substantial amount of income to their return by way of a Roth IRA conversion.

Conclusion

Roth IRA conversions could be worthy of your consideration. If so, we encourage you to have a conversation about this opportunity with your trusted advisors.

This article is provided for informational purposes only. The opinions and analyses expressed herein are those of the author and not necessarily those of the firm. They are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. MAI Capital Management, LLC (“MAI”) is a SEC registered
investment adviser.