Craig Wear argues most financial advisors wrongly tell clients to avoid Roth conversions because they raise this year's taxes. Converting now shrinks the future required minimum distributions you'll owe tax on later. Paying more tax today means less forced taxation in retirement.
Most financial advisors will advise against doing Roth conversions because it means you pay more tax. And that's their job. They make sure you don't pay taxes when you can avoid it. But when it comes to RMDs, that's kind of like painting over a rusty pipe. On the outside, it looks as good as new, but on the inside, corrosion keeps spreading and it won't be long until you're dealing with a big leak. So if all you look at are this year's taxes, then avoiding extra taxable income seems like a smart move. But protecting your IRA from taxes now is also stopping it from getting smaller, which means your future RMDs aren't aren't getting smaller either. So instead of aiming to stay in your current bracket, by strategically moving into higher brackets now, you relieve more of the pressure RMDs cause than if you had just played it safe. And that's the shift that most people miss. Because the goal is not to win the tax bracket game this year. The goal is to reduce the amount of money that's still trapped inside that future forced tax system. So stop trying to win the tax bracket game.
