You can’t contribute to a traditional IRA, at any age, if you don't have earned income. But can someone who is retired and age 70½ still roll over money from a traditional IRA to a Roth? 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Once the money is in the Roth, you'll be able to take tax-free withdrawals (you may have to pay taxes on any earnings withdrawn within five years of the conversion, but only after you've withdrawn contributions and converted amounts).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 converting a Traditional IRA
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 looks at your 2022 tax returns to see if you must pay anIRMAA in 2024.
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
Also, 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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FAQs
For taxpayers who anticipate a higher tax rate post-retirement, converting a regular IRA to a Roth IRA after age 60 can help to lower their total tax burden over time. Roth IRA conversions allow earnings to grow tax-free and avoid the need to make required withdrawals that increase post-retirement tax costs.
Should I convert my IRA to a Roth IRA after age 60? ›
For taxpayers who anticipate a higher tax rate post-retirement, converting a regular IRA to a Roth IRA after age 60 can help to lower their total tax burden over time. Roth IRA conversions allow earnings to grow tax-free and avoid the need to make required withdrawals that increase post-retirement tax costs.
Is it too late to convert a traditional IRA to a Roth IRA? ›
No, it is not legally too late. The IRS allows you to make a conversion at any time so long as you have qualifying funds, such as a traditional IRA, and can pay the conversion taxes.
What is the maximum age to convert 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.
What is the downside of converting IRA to Roth? ›
Disadvantages of Converting to a Roth IRA
Higher taxable income that year could have one or more of these negative effects: A higher tax bracket, A higher portion of Social Security benefits subject to tax, Higher Medicare premiums, and.
How much tax will I pay if I convert my IRA to a Roth? ›
Since the contributions were previously taxed, only subsequent earnings would be taxable on a conversion to a Roth IRA. If the investor converts $20,000 to a Roth IRA, 90% ($18,000) would be considered taxable income upon conversion and 10% ($2,000) would be considered after-tax IRA assets and not taxed.
Does converting IRA to Roth affect social security? ›
If you or your spouse are currently drawing Social Security, be aware that a Roth conversion could increase the taxability of your Social Security. The taxation of your Social Security benefits is determined by the amount of your provisional income (also called combined income).
When should you not do a Roth conversion? ›
Who should not consider converting to a Roth IRA?
- You're nearing—or in—retirement and need your traditional IRA to cover your living expenses. ...
- You're currently receiving Social Security or Medicare benefits. ...
- You don't have money to pay the conversion tax or must sell assets that could lead to an additional tax hit.
The amount you choose to convert (you don't have to convert the entire account) will be taxed as ordinary income in the year you convert. So you'll need to have enough cash saved to pay the taxes on the amount you convert.
Do Roth conversions affect Medicare premiums? ›
A Roth conversion can be a great idea, but it can also increase Medicare premiums substantially. Because Medicare premiums are tied to income it is important to be able to run scenarios on converting to a Roth IRA.
The Roth IRA five-year rule says you can withdraw your investment earnings tax-free and penalty-free as long as you've held the account for at least five years. It's important to note this rule applies specifically to investment earnings.
How do you not lose money in a Roth IRA conversion? ›
Bottom line. If you want to do a Roth IRA conversion without losing money to income taxes, you should first try to do it by rolling your existing IRA accounts into your employer 401(k) plan, then converting non-deductible IRA contributions going forward.
At what age should I stop contributing to my Roth IRA? ›
Roth IRAs: Like their traditional counterpart, there is no age limit of Roth IRA contributions. So long as you or your spouse earns income, you can continue to make contributions indefinitely. There are no RMDs with Roth accounts.
Should a 60 year old open a Roth IRA? ›
Opening or converting to a Roth in your 50s or 60s can be a good choice when: Your income is too high to contribute to a Roth through normal channels. You want to avoid RMDs. You want to leave tax-free money to your heirs.
Do I pay taxes on Roth IRA after 60? ›
As long as your earnings stay in your Roth IRA, they grow tax-free. To take those earnings out though, you have to abide by the Roth IRA withdrawal rules. You need have had the account open for at least five years, and be at least age 59 ½, to withdraw your investment earnings without paying taxes on them.
