Can You Do an IRA Conversion in Retirement?

​Are you considering whether to convert your traditional IRA into a Roth IRA? There could be some benefit in doing so. With a Roth IRA, you’re allowed to take withdrawals tax-free after age 59½. Withdrawals from your traditional IRA are taxed as ordinary income.
 
Another potential benefit is Roth IRAs don’t have required minimum distributions (RMDs) at age 70½. If your goal is to keep your funds in your IRA as part of a legacy planning strategy, the idea of eliminating RMDs may be appealing.

You might wonder whether you can do a conversion after you retire. The simple answer is yes, you can. There is no age limit on IRA conversions. In fact, you can even do a conversion after age 70½.
 
However, just because you can do a conversion doesn’t mean you should. There are a few important ramifications to consider. Every person’s needs and goals are different, so it’s important you analyze the conversion carefully and review your unique situation before moving forward.

Effects if a conversion.
An IRA conversion always generates some form of tax liability. That should be expected since you are eliminating an account with taxable withdrawals in favor of an account with tax-free withdrawals.
 
However, the conversion can have some other unexpected consequences. These consequences stem from the fact the conversion will inflate your adjusted gross income during that particular tax year. Depending on how high your income is, your Social Security could be taxed at a higher rate and your Medicare premiums could rise.
 
For example, in 2016, the base level for Medicare Part B premiums is $121.80 per month for singles with up to $85,000 in income and couples with up to $170,000 in income. The premiums rise, however, once your income exceeds those thresholds. At the highest tier, premiums are $389.80 per month.
 
Taxes on Social Security also increase as income rises. At lower income levels, only up to 50 percent of Social Security benefits are taxable. However, as incomes cross into higher tiers, up to 85 percent of benefits may be taxable.
 
Develop a strategy. 
If you want to convert, but don’t want to trigger higher premiums or taxes, it’s important you put a strategy in place to convert your IRA safely. One strategy may be to convert it in portions. There’s nothing saying that a conversion has to take place all at once.
 
You can convert a portion each year and keep a careful eye on the Medicare and Social Security thresholds. For more information, talk to your insurance or financial professional along with your tax professional. They can help you develop a plan to convert your IRA into a Roth.
 
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
 
15431 - 2016/2/29