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Roth IRA conversions can reduce RMD taxes but may raise bills early
With a $650,000 traditional IRA, first RMDs around age 75 could push some retirees from the 22% to the 24% tax bracket, according to the example cited.
Yahoo Finance highlights how converting pre-tax retirement savings into a Roth IRA can help retirees reduce or avoid required minimum distributions (RMDs), since Roth accounts are not subject to RMD rules.
The article notes that Roth conversions can still be costly because any amount converted is treated as taxable IRA withdrawals in the year of the conversion, making lump-sum conversions potentially trigger significant tax bills.
Using an example of a $650,000 traditional IRA at age 64 growing at an average 7% per year, the piece estimates the account could reach about $1.37 million by age 75, with a first annual RMD around $95,000.
It also explains how those RMDs, when combined with other income, can raise overall taxes, illustrating a scenario where $75,000 of taxable income from other sources could increase the income tax liability by moving the retiree from the 22% to the 24% bracket.