What I Actually Look At Before Recommending a Roth Conversion
Roth conversions have become popular.
For good reason.
Done correctly, they can reduce lifetime taxes and increase flexibility.
Done poorly, they simply accelerate taxes unnecessarily.
In higher net worth households, a Roth conversion is not a default strategy.
It is a structural decision.
Here is what I actually analyze before recommending one.
1. The Current Tax Bracket vs Future Expected Brackets
The core question is simple:
Are we paying tax at a lower rate now than we expect later?
But that analysis is rarely simple.
For affluent households, future brackets are influenced by:
Required Minimum Distributions
Social Security stacking
Investment income
Medicare IRMAA thresholds
The death of a spouse and compressed single brackets
Many retirees in Grosse Pointe look “low income” for a few years between retirement and RMD age.
That window can be powerful.
But if a household is already in a high marginal bracket and expects lower income later, a large conversion may not be justified.
We model across multiple years, not just the current one.
2. The “Widow Penalty” Risk
This is frequently overlooked.
When one spouse passes, filing status shifts from joint to single.
Income often remains similar.
Tax brackets shrink.
That means the surviving spouse may pay materially higher tax on the same income.
Before recommending a Roth conversion, I run:
Joint life scenario
Survivor scenario
If converting now prevents bracket compression later, it becomes more compelling.
For multi-million-dollar IRA balances, this can be significant.
3. IRMAA and Medicare Premium Impact
Roth conversions increase Modified Adjusted Gross Income.
That can trigger:
Higher Medicare Part B premiums
Higher Part D premiums
These surcharges are based on income from two years prior.
For some households, crossing a threshold for a modest conversion is inefficient.
For others, intentionally filling a bracket even if IRMAA increases slightly still reduces long-term tax drag.
We calculate the marginal cost of crossing each line.
Not just the income tax.
4. Estate Intentions
If the goal is to leave significant assets to children, Roth conversions can be powerful.
Why?
Because inherited Roth IRAs:
Must still be distributed within 10 years
But distributions are income tax free
That can meaningfully improve the net inheritance.
However, if most retirement assets will be consumed during lifetime, aggressive conversions may simply increase current tax without long-term benefit.
The purpose of the money matters.
5. Cash Flow to Pay the Tax
I rarely recommend large Roth conversions paid from the IRA itself.
Using outside cash to pay conversion tax preserves the tax-free growth of the converted amount.
Affluent households often have:
Taxable brokerage assets
Cash reserves
Business liquidity
If paying tax requires liquidating concentrated positions at poor times, the conversion may be mistimed.
Liquidity sequencing matters.
6. Market Conditions
This is subtle but important.
If markets decline significantly and IRA values are temporarily lower, converting during that period can be more efficient.
You are converting depressed assets.
Future recovery happens inside the Roth.
That said, I do not recommend timing conversions purely on market speculation.
We look for opportunistic efficiency, not market gambling.
7. Time Horizon
If a client is 62 with a 25 to 30 year horizon, the compounding advantage of Roth growth is substantial.
If a client is 80 with limited life expectancy and strong guaranteed income, aggressive conversion may not provide enough runway to justify the tax cost.
Longevity assumptions influence strategy.
What I Don’t Do
I do not automatically recommend “fill up the bracket every year.”
I do not convert simply because taxes “might go up.”
I do not treat Roth conversions as a one-time event.
In higher net worth households, Roth strategy is usually a multi-year plan executed gradually.
Not a single large transaction.
The Right Question
The question is not:
“Should we do a Roth conversion?”
The better question is:
“Does accelerating taxes today reduce total lifetime and survivor taxes across the household?”
In Grosse Pointe, many affluent retirees have:
Large pre-tax IRAs
Multiple properties
Adult children
Estate intentions
The right conversion strategy integrates:
Income modeling
Survivor modeling
Medicare thresholds
Estate coordination
When done correctly, Roth conversions are strategic.
When done casually, they are expensive.
If you are within a few years of retirement or already retired and have not modeled multi-year conversion scenarios, it is worth doing deliberately.
Because once Required Minimum Distributions begin, flexibility narrows quickly.
