Common Myths About Roth Conversions

When it comes to retirement planning, few topics spark as much curiosity—and confusion—as Roth conversions. A Roth conversion is the process of moving money from a traditional IRA or 401(k) into a Roth IRA. While the concept sounds simple, the decision carries important tax, timing, and strategic implications. Unfortunately, there are many myths surrounding Roth conversions that can cause people to make hasty decisions or avoid them altogether.

In this blog, we’ll break down some of the most common myths, clarify the benefits and risks, and show how a thoughtful approach can improve your financial future. Whether you’re already in retirement or still planning for it, understanding the truth about Roth conversions can help you make smarter, more informed decisions.

Why Roth Conversions Matter

Before we tackle the myths, it’s important to understand why Roth conversions are relevant. Traditional retirement accounts like IRAs and 401(k)s are funded with pre-tax dollars, meaning you get a tax break when you contribute. However, withdrawals in retirement are taxed as ordinary income. Roth IRAs, on the other hand, are funded with after-tax dollars, and qualified withdrawals are entirely tax-free.

A Roth conversion allows you to “pay taxes now” on the converted amount so that you can enjoy tax-free withdrawals later. For many retirees—or those approaching retirement—this can help reduce tax burdens, provide flexibility, and improve long-term financial security. But like most financial strategies, it’s not one-size-fits-all.

Common Myths About Roth Conversions

Myth #1: Roth Conversions Only Make Sense for Young People

One of the biggest misconceptions is that Roth conversions are only beneficial for people who are decades away from retirement. The logic is that younger individuals have more time for their money to grow tax-free. While that’s true, older investors can also benefit significantly.

For retirees, Roth conversions can help reduce future required minimum distributions (RMDs), which begin at age 73 under current law. Lower RMDs can keep taxable income down, reduce Medicare premiums, and potentially limit the taxation of Social Security benefits. Even if you’re in your 60s or 70s, strategic conversions may still improve your long-term outlook.

Myth #2: A Roth Conversion Saves Money Right Away

A common misunderstanding is that a Roth conversion automatically saves money. In reality, it often creates a tax bill in the year of the conversion. The real benefit is long-term: paying taxes at today’s rate to potentially avoid higher rates in the future.

If tax rates rise, or if your income increases later in retirement, the upfront tax hit may be well worth it. But if you’re already in a high tax bracket, converting too much in one year can push you even higher. Timing and partial conversions spread over several years can help balance the cost.

Myth #3: You Must Convert Everything at Once

Some people believe a Roth conversion is an all-or-nothing move. The truth is you can convert as much or as little as you want each year. In fact, partial conversions are often the smartest strategy.

By converting smaller amounts over multiple years, you can manage your taxable income, stay in lower tax brackets, and avoid unnecessary spikes in Medicare premiums or other tax-related thresholds. Flexibility is key, and gradual conversions can offer a smoother path toward tax-free retirement income.

Myth #4: Roth Conversions Don’t Matter If You Won’t Use the Money

Another myth is that Roth conversions only matter if you’ll personally spend the funds in retirement. But Roth IRAs can also serve as a powerful estate planning tool. Unlike traditional IRAs, Roth IRAs don’t have RMDs during your lifetime. That means the money can continue growing tax-free, and when passed to heirs, they’ll inherit an account that can provide years of tax-free growth and withdrawals.

For individuals who want to leave a legacy, Roth conversions can reduce the tax burden on beneficiaries and provide them with a more flexible inheritance.

Myth #5: A Roth Conversion Is Always the Right Move

Just because Roth conversions can be beneficial doesn’t mean they’re the right choice for everyone. If you expect to be in a significantly lower tax bracket in retirement, it might not make sense to pay higher taxes today. Similarly, if paying the conversion tax would require dipping into retirement savings, the strategy may backfire.

Roth conversions work best when you can pay the tax bill with non-retirement assets and when the long-term tax savings outweigh the short-term cost. Careful analysis is essential to determine if this strategy aligns with your unique circumstances.

Short-Term vs. Long-Term Financial Impact

In the short term, the primary effect of a Roth conversion is the tax bill. Depending on the amount converted, this can be substantial, and mismanaging it can create cash flow challenges.

In the long term, however, the benefits can be significant:

• Lower required minimum distributions (RMDs)

• Reduced lifetime tax liability

• Tax-free income flexibility in retirement

• Potentially smaller Medicare premiums and lower taxes on Social Security

• A tax-efficient legacy for heirs

  
  

The key is weighing today’s cost against tomorrow’s benefit.

The Importance of Professional Guidance

Because Roth conversions involve multiple moving parts—tax brackets, timing, Medicare implications, estate planning—it’s critical to get guidance from a knowledgeable financial advisor. A well-crafted conversion strategy should align with your overall financial plan, not just minimize taxes in isolation.

An advisor can help you:

• Determine how much to convert (and when)

• Model different tax scenarios

• Evaluate the impact on Medicare and Social Security

• Balance short-term costs with long-term benefits

• Coordinate Roth conversions with other retirement income strategies

  
  

Making these decisions alone can be overwhelming and potentially costly. Partnering with a professional ensures you’re making the most informed choice possible.

Actionable Takeaways

If you’re considering a Roth conversion, here are some steps to help you get started:

1. Know your tax bracket – Understand where you stand today and how much room you have before hitting the next bracket.

2. Consider partial conversions – Don’t feel pressured to convert everything in one year; spreading it out can save money.

3. Plan to pay taxes with outside funds – Using non-retirement assets to cover the tax bill maximizes the benefit.

4. Think about your heirs – Even if you don’t plan to use the money, Roth IRAs can be an efficient legacy planning tool.

5. Work with an advisor – Every situation is unique, and professional guidance can help you navigate the trade-offs.

   
   

Final Thoughts

Roth conversions are powerful tools, but they’re also widely misunderstood. Myths like “they’re only for young people” or “you have to convert everything at once” can lead to missed opportunities or costly mistakes. By understanding the real benefits and risks, you can decide if this strategy is right for you.

Remember, financial planning isn’t about following rules of thumb—it’s about tailoring strategies to your life, goals, and resources. If you’d like to explore whether Roth conversions should be part of your retirement plan, you don’t have to figure it out alone.

👉 Schedule a complimentary phone call with OpenAir Advisers to discuss your options and create a strategy that works for you.