Q&A: Can Single Filers Benefit From Roth Conversions?

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I recently received the following reader question:

I have come across your articles on Roth conversions. I am single and 66 years old, not currently working. I have heard that it is not usually beneficial for a single person to do a Roth conversion. Do you agree with this?

There are several ways that a Roth conversion benefits people regardless of their filing or marriage status. Some of the benefits of doing a Roth conversion are:

  1. Moving assets from a traditional IRA into a Roth IRA prevents all future taxation on that money, which may reduce your long-term tax burden.
  2. A Roth conversion reduces the value of your traditional IRA. Without the conversion, your traditional IRA may grow to the point where the required minimum distributions (RMDs) or standard of living withdrawals push you into a higher tax bracket.
  3. A Roth conversion reduces the value of your taxable account as you withdraw to pay the tax owed, which may reduce the future burden of taxable dividends, interest, and capital gains on your return each year.
  4. Leaving your heirs a Roth IRA instead of a traditional IRA will let the account value grow tax-free over their lifetime, enhancing the value of your estate.

All of these benefits are equally enjoyed by a single individual as by a married filing jointly family.

You mentioned you are age 66. We call the age 65 to age 70 years “the gap years” because they are often after retirement and before an age 70 Social Security filing. These gap years are actually the ideal time for large Roth conversions, regardless of filing status, as you are often in the lowest tax bracket of your adult lifetime.

That being said, if you have already filed for Social Security or have not yet retired, Roth conversions can still be a good idea. As you draw down your taxable accounts, you may need to begin withdrawing from an IRA later in life. Without conversions, those future IRA withdrawals will sit on top of your retirement income and push your taxable income higher. In contrast, by doing Roth conversions, you can smooth your income, converting now some of what you will later need to withdraw.

We have an article called “Two Simple But Effective Conversion Target Calculations” which has one strategy for those who are younger than the required beginning date of required minimum distributions (RMDs) and one for when you are older and taking RMDs.

At age 66, a simple conversion target would be somewhere between the top of your current bracket and the value of your account divided by 4 or 5 (the number of years you have until you turn age 70 1/2) depending on your birth month.

There are several factors which could make the ideal conversion target higher or lower, but a more precise conversion target would require complex analysis like our Tax Planning service. At this time, we are not able to offer this service to individuals who are not “Comprehensive” level clients. However, if you are interested in becoming a client, we would be happy to meet with you. Our prospective client meetings are free and it is easy to get started as a client.

Otherwise, if you’d like more help on a conversion target, we often select new article topics from the reader questions we receive. If you feel you have a complex case that is not answered or addressed by articles previously written, you can try asking your questions of us and see if we respond. I cannot guarantee that we will answer your question, but you are always permitted to ask.

Although there is a “best conversion” and we can do our best to predict which plan it is, even the “worst conversion” plan can save hundreds of thousands or even millions of after-tax value over doing nothing. Just converting something is often the right move.

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Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. Her most popular post: The Complete Guide to Your Washing Machine