Is a Roth Conversion Worth It at 55?

When and How to Do It Right

Roth conversions can be a powerful retirement planning tool—but timing is everything.

At age 55, you’re likely hitting your peak earning years. Retirement is within view, but not quite here. This is the window when smart tax strategies, like Roth conversions, can make a significant impact on your future income and legacy.

But a Roth conversion isn’t right for everyone. In this article, we’ll explore how Roth conversions work, who they benefit, when to avoid them, and how to evaluate whether it makes sense for you at this stage of life.

What Is a Roth Conversion—and Why It Matters

A Roth conversion is the process of moving money from a Traditional IRA or 401(k) into a

Roth IRA. When you convert, you pay taxes on the amount you move, but once in the Roth, the money grows tax-free and withdrawals in retirement are also tax-free (if certain conditions are met).

Why does this matter?

Because midlife is a prime opportunity to optimize your lifetime tax picture. If you expect your tax rate to be the same or higher in retirement, paying some tax now in exchange for future tax-free income can be a smart tradeoff.

Roth Conversion Pros and Cons

Roth conversions are attractive, but they aren’t risk-free. Here’s how to think through the benefits and tradeoffs.

Benefits

• Tax-Free Growth and Withdrawals Once inside the Roth IRA, your money grows tax-free and qualified withdrawals in retirement are not taxed.

• No Required Minimum Distributions (RMDs) Unlike Traditional IRAs, Roth IRAs are not subject to RMDs during your lifetime, which offers more flexibility in retirement.

• Tax Diversification Having both tax-deferred and tax-free accounts gives you more control over how much you withdraw—and how much tax you pay—each year in retirement.

• Legacy Planning Roth IRAs are often more favorable for heirs, who can take distributions without income tax (although still subject to 10-year distribution rules).

Drawbacks

• Taxes Are Due Now The amount you convert gets added to your taxable income for the year, which can push you into a higher bracket.

• No Going Back As of 2018, you can’t recharacterize (or undo) a Roth conversion. Once it’s done, it’s done.

• May Affect Other Tax Items Conversions can increase your Medicare premiums, phase out deductions or credits, and even impact capital gains taxes on other income.

Key Criteria: Should You Convert at 55?

Whether a Roth conversion is worth it depends on your personal financial picture. At 55, ask yourself:

• What is your current marginal tax rate? If you're in a relatively low bracket, converting now might make sense.

• Will your tax rate be higher in retirement? If so, Roth income in retirement will be more valuable.

• Do you have after-tax funds to pay the conversion tax? Paying the tax from outside the IRA is generally more beneficial.

• How many years until retirement? The more years between now and when you start withdrawals, the more time the Roth funds have to grow tax-free.

• Do you have large pre-tax balances? Converting some now can help you manage RMDs and tax exposure later.

When Not to Do a Roth Conversion

A Roth conversion is not a blanket solution. Here are times when it may not make sense:

• You're in a high-income year. Converting could push you into a higher bracket, making the tax cost too steep.

• You need the IRA funds within five years. Withdrawals of converted funds are subject to a five-year holding period to avoid penalties (even if you're over 59½).

• You don’t have cash on hand to pay the taxes. If you use IRA money to pay the tax bill, you lose valuable compounding power—and may owe a 10% early withdrawal penalty.

• You're close to Medicare or ACA coverage. Conversions could increase your IRMAA surcharges or reduce ACA subsidies.

How to Do a Roth Conversion: Step-by-Step

The mechanics of a Roth conversion are relatively simple. The strategy behind it takes more care.

Step 1: Determine How Much to Convert

You don’t have to convert everything. Many people do partial Roth conversions each year—often to the top of their current tax bracket.

Step 2: Work With Your Financial Advisor or Tax Professional

Model the tax impact before converting. Consider how it affects your bracket, credits, and any other income.

Step 3: Initiate the Transfer

You’ll move funds directly from your Traditional IRA or 401(k) into a Roth IRA. Most custodians allow this online or with a form.

Step 4: Pay the Taxes

You’ll owe income tax on the amount converted. Ideally, this is paid from non-retirement assets.

Step 5: Track the Five-Year Rule

Each conversion has its own five-year clock. Even after age 59½, early withdrawal of converted funds may trigger penalties if you haven't met the five-year rule.

Sample Scenario: Roth Conversion From 55 to 65

Angela, age 55, earns $130,000 annually and has $750,000 in a Traditional IRA. She plans to retire at 65.

Each year, she converts $25,000 from her IRA to a Roth—keeping her total income under the 24% tax bracket. She uses after-tax savings to pay the tax.

By the time she retires, she’s moved $250,000 to a Roth IRA. That money now grows tax-free, reduces her future RMDs, and gives her more control over her income in retirement.

Without this strategy, she may have faced large RMDs beginning at age 73—potentially pushing her into a higher tax bracket later in life.

Roth Conversion Rules, Limits, and Pitfalls

There are no income limits on Roth conversions, but there are a few important rules:

• Converted funds must be reported as income in the year of the conversion.

• Each conversion has its own five-year rule.

• Once converted, it can’t be undone.

• Converting large amounts in a single year can lead to unintended tax consequences—including higher Medicare premiums, higher capital gains taxes, and loss of deductions or credits.

That’s why partial, multi-year conversions—carefully modeled and executed—are often the most effective approach.

Final Thoughts

At 55, you’re in a unique position to shape the tax outcome of your retirement. A Roth conversion strategy can be a powerful way to lock in tax-free income later in life—especially if you have the time, the cash to pay taxes, and a long retirement horizon ahead.

But every situation is different. Conversions require thoughtful modeling and coordination with your broader financial plan.

If you’re considering a Roth conversion—or wondering if now is the right time—schedule a consultation. Together, we can look at the numbers and decide what’s right for your next chapter.