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What Roth Conversions Are Likely (And Unlikely) To Achieve

The topic that I help clients with most often is retirement tax planning. And my approach to that work includes modeling different tax strategies in financial planning software.

When I do that, what I find is that a plan for tax-efficient spending (i.e., which dollars to spend each year in retirement) often has a significant impact on retirement safety. For example, it often has the result of:

  • Reducing the projected probability of portfolio depletion by several percentage points (e.g., from 20% to 14%), while also
  • Pushing back the date at which those depletion scenarios do occur (e.g., so that in the “unlucky” scenarios, the household now runs out of savings in their mid 90s instead of late 80s).

But once you have a tax-efficient spending plan in place, a Roth conversion plan does not usually result in any meaningful improvement to retirement safety. That is, conversions don’t typically improve either of those metrics above by a meaningful amount.

And that has been my experience with a broad range of clients — ranging from super financially secure to more borderline, with varying ages upon retirement, and with a wide variety of portfolio sizes and compositions. And that has been the case using a broad variety of assumptions (e.g. varying assumed lifespans, average investment returns, etc.).

Roth conversions simply do not tend to increase retirement safety.


This is a simplification, but I often think of Roth conversions as a tool for solving/alleviating two “problems.” (For more on these topics, please see this article: The 4 Effects of Roth Conversions.)

  1. Required minimum distributions (RMDs) from tax-deferred accounts (both during your lifetime and after your death).
  2. The ongoing tax drag that occurs in taxable accounts (i.e., by letting you use taxable dollars to pay the tax on a conversion — thereby effectively using your less-tax-efficient taxable dollars to buy very tax-efficient Roth space).

But neither RMDs nor tax drag in taxable accounts is on the list of “stuff that’s likely to cause portfolio depletion in retirement.”

RMDs simply do not cause people to go broke. (In fact, RMDs are often recommended as a strategy for spending from a portfolio.)

And in unlucky retirement scenarios (e.g., poor investment returns early in retirement or a major spending shock early in retirement), the problem of tax drag in the taxable account typically solves itself, because the taxable account usually gets spent down pretty quickly in those scenarios anyway.

So Why Bother with Roth Conversions?

Given the above, you might ask why a person would bother with Roth conversions. The answer is that, in cases in which Roth conversions are suitable (which, for many but not all households, is in the years after retiring but before collecting Social Security and before RMDs kick in), they provide a significant increase in the the after-tax bequest that is likely to be left to heirs. (Again, please see this article for a discussion of the mechanics.)

In other words, a well-crafted Roth conversion plan typically:

  1. Does not make the unlucky outcomes significantly better or worse and
  2. Makes the lucky outcomes significantly better.

When I say “a well-crafted Roth conversion plan,” what I mean is a plan that carefully considers whether conversions should be done each year, and if so, to what threshold. Roth conversions are not suitable for everybody. For instance, households with large charitable intent are much less likely to benefit from conversions, because they can use qualified charitable distributions to satisfy RMDs and because the after-death tax rate on their tax-deferred accounts will be 0% to the extent the balances are left to charity.

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