‹ Regresar

Step 1: Open a Roth IRA

 

If you don't already have one, open a Roth IRA at a custodian such as:

 

• Charles Schwab

• Fidelity Investments

• Vanguard

 

Step 2: Request the Conversion

 

Contact your custodian or initiate the transaction online.

 

You instruct the custodian to transfer assets from:

 

• Traditional IRA → Roth IRA

• You can convert:

• cash,

• mutual funds,

• ETFs,

• stocks,

• or the entire account.

• No sale is required if the assets can be transferred "in kind."

 

 

Step 3: Pay the Income Tax

 

The amount converted is generally added to your ordinary taxable income for the year.

 

For example:

 

• Traditional IRA balance: $2,800,000

• Conversion amount: $100,000

 

If you're in a 24% federal bracket:

 

• Additional federal tax ≈ $24,000

• Plus any applicable state taxes

 

Many advisors prefer paying the tax from a taxable account rather than withholding it from the IRA, allowing more money to remain invested in the Roth.

 

Step 4: Invest Inside the Roth IRA

 

Once the assets arrive in the Roth IRA, you invest them according to your allocation strategy.

Future qualified growth and withdrawals are generally tax-free.

 

Example

 

Consider the couple from your earlier scenario:

• Age 58

• Retired

• $2.8M Traditional IRA

• $900K taxable account

• $500K Roth IRA

 

A planner might evaluate converting:

 

• $50,000

• $100,000

• $150,000

• or more annually

 

between retirement and the start of:

 

• Social Security,

• Medicare-related income surcharges,

• and Required Minimum Distributions.

 

The objective is often to fill up a desired tax bracket (e.g., 22% or 24%) each year without unnecessarily pushing income into much higher brackets.

 

What makes a good Roth conversion candidate?

 

Typically someone who:

 

• Has substantial pre-tax retirement assets.

• Expects future tax rates to be similar or higher.

• Can pay the conversion tax from non-retirement assets.

• Wants to reduce future RMDs.

• Values tax flexibility later in retirement.

 

For many affluent retirees, Roth conversions between retirement and age 73 are among the most effective lifetime tax-planning strategies available.