A GUIDE TO ROTH CONVERSIONS

Moving funds from a traditional IRA or 401(k) to a Roth account can help you avoid hefty tax bills. But watch out for costly unintended consequences.

- BY KIMBERLY LANKFORD

YOU could have a tax time bomb in your retirement savings. If you’re like many people in their fifties and sixties, you have diligently set aside pretax money in a 401(k) or a traditional IRA, and that money has been growing tax-deferred through the years. But when you start taking it out, your withdrawals will be taxable. And you can’t let it keep growing forever. Eventually, you'll need to take required minimum distributions (RMDs)—currently starting at age 73—based on your life expectancy, and those mandatory withdrawals could come with a big tax hit.

"If you’ve done a great job of saving in your pretax 401(k) and traditional IRAs, your RMD amount may be a surprisingly big number—and it could potentially bump you into a higher tax bracket," says Roger Young, a certified financial planner and thought leadership director for T. Rowe Price. If you have $1 million in tax-deferred accounts, for example, that first RMD at age 73 would be nearly $40,000 in taxable income, and you'd have to take required withdrawals every year.

Large RMDs can also have a ripple effect on other parts of your finances. Depending on how much other income you have, you could end up paying the Medicare high-income surcharge, which would boost your Medicare premiums by about $900 or more, per person, each year. The extra income from the RMD may also cause a larger portion of your Social Security benefits to be taxable.

The tax situation could get worse after one spouse dies and the survivor goes from filing a joint tax return to filing singly. The survivor may still have to take RMDs from their own IRAs as well as from IRAs they inherited from their spouse, so their income level may not change much. But that income may be taxed at a higher rate for a single filer than for a married couple filing jointly. The 24% bracket, for example, applies to income of $103,351 to $197,300 for a single filer and $206,701 to $394,600 for joint filers in 2025.