It's not difficult to convert a traditional IRA to a Roth if you mind your taxes. And you can contribute to a traditional IRA at any age as long as you have earned income. But can someone who is age 70½ still roll over money from a traditional IRA to a Roth in retirement? Do you need to have earned income to make a successful conversion? Let's delve into those answers and find out what anyone making an IRA conversion should consider before rolling over funds to a Roth IRA.
Who can convert a traditional IRA to a Roth IRA?
There's no age limit or income requirement to be able to convert a traditional IRA to a Roth. You must pay taxes on the amount converted, although part of the conversion will be tax-free if you have made nondeductible contributions to your traditional IRA.
Once the money is in the Roth, you can take tax-free withdrawals. (You may have to pay taxes on any earnings withdrawn within five years of the conversion, but only after you've withdrawn contributions and converted amounts.) See Roth IRA Basics: 10 Things You Must Know for more information.
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Possible financial consequences of a conversion
Be careful before making a big conversion in one year, however, because it can have a ripple effect on other areas of your finances. The conversion will be included in your adjusted gross income, which could bump some of your income into a higher tax bracket and could also cause you to pay more for your Medicare premiums and higher taxes on your Social Security benefits.
The Social Security Administration (SSA) determines who pays an income-related monthly adjustment amount (IRMAA) based on the income reported two years prior. So, the SSA looked at your 2022 tax returns to see if you must pay an IRMAA in 2024. Similarly, SSA will examine your 2023 tax returns to determine whether you must pay IRMAA in 2025.
If your adjusted gross income (plus tax-exempt interest income) is more than $103,000 if you're single or $206,000 if married filing jointly, you will have to pay the Medicare high-income surcharge for Parts B and D.
In 2024, people subject to the surcharge pay an additional $69.90 to $419.30 per person each month, depending on their income, for Medicare Part B premiums. They also pay a high-income surcharge of $12.90 to $81.00 above their Part D premiums. See Medicare Premiums 2024: IRMAA for Parts B and D for more information.
The extra income from the conversion could also increase the portion of your Social Security benefits that is subject to income taxes. See Do You Have to Pay Taxes on Social Security Benefits? for details.
Keep an eye on RMDs (required minimum distributions) the year you convert your traditional IRA
Keep in mind that rolling money over from a traditional IRA to a Roth after 70½ won't reduce your RMD for the year of the conversion; the required withdrawal is based on your IRA balance as of the end of the previous year. But it can reduce your RMDs for future years.
Instead of making one big conversion, consider rolling over a portion of the money from a traditional IRA to a Roth every year, with a close eye on the top of your tax bracket and income limits for the Medicare high-income surcharge and Social Security taxes.
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