Why Would an Adviser Push Retirees in Their 80s Toward Roth Conversions?

A retired couple in their 80s is puzzled by a recommendation many readers in similar situations may encounter. They say their basic living costs are covered by $110,000 a year from pensions and Social Security, and they hold about $950,000 in traditional IRAs. Their adviser wants them to do Roth conversions. To them, that looks backward, since they have no obvious need for the money.

The logic is less about spending and more about taxes. Every dollar moved from a traditional IRA into a Roth IRA counts as ordinary income in the year of the move, so a conversion raises that year's tax bill. In exchange, qualified Roth withdrawals are tax-free, and Roth IRAs do not require withdrawals during the owner's lifetime. That can matter for a retiree who plans to leave money behind. Heirs who inherit a traditional IRA generally must empty it within a set period and pay income tax on what they take out, while Roth inheritances usually come with no income tax for the heir.

Age adds a complication. By their 80s, the couple is likely already required to take annual minimum distributions from their traditional IRAs. A Roth conversion cannot satisfy that requirement. The required amount has to come out first and be taxed, and only money beyond it can be converted.

Income is the other constraint. With $110,000 of guaranteed income, the couple may already sit in a fairly high tax bracket, so each extra dollar converted could be taxed steeply. Higher income can also trigger surcharges on Medicare premiums two years later, and it can make more of their Social Security benefits taxable. Those costs are why planners often suggest modest conversions spread over several years rather than one large move.

Advisers who push conversions usually argue across a longer horizon: pay tax now at a known rate to shrink a bigger future bill. They may also point out that a surviving spouse files as a single taxpayer, with narrower brackets, so a large traditional balance can become costly later. Whether that payoff materializes depends on the couple's tax rates, life expectancy, their heirs and whether the tax can be paid from outside savings. Paying the tax out of the IRA itself leaves less money to grow tax-free.

The practical takeaway is that a Roth conversion is neither automatically smart nor automatically wasteful. Anyone in this position should ask an adviser for a year-by-year projection that shows the tax owed, the effect on Medicare premiums and Social Security taxation, and the net result for both spouses and their heirs under several scenarios.