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Roth conversions can reduce future RMD withdrawals but trigger current taxes
The tax-deferred withdrawals avoided after retirement are offset by treating converted amounts as ordinary income on the current return.
Yahoo Finance and SmartAsset outline that moving money from a 401(k) or other tax-deferred account to a Roth IRA can prevent retirement savers from being forced into taxable required minimum distributions after age 75. Once the assets are in the Roth account, they are not subject to RMD rules.
The outlet notes that Roth conversions are not tax-free, because any amounts converted are treated as ordinary income on the saver’s current tax return. For someone converting while in retirement accumulation years, that can create a sizable tax bill for the year of conversion.
Yahoo Finance also highlights that conversion strategy should not rely solely on converting a fixed percentage each year. Instead, it suggests calculating the conversion amount based on how it affects the saver’s tax bracket.
The story adds that timing matters for penalty-free withdrawals: if the conversion is made before age 59.5, withdrawals generally require waiting at least five years after the conversion to avoid restrictions. It concludes that a financial advisor can help assess the tradeoffs of conversion versus leaving assets in the 401(k).