Craig Wear, CFP® explains what he means by "partial Roth conversions" (a slow, periodic approach of converting portions of traditional IRAs to Roth) and walks through common pros and cons. Pros: tax-free growth and withdrawals once in Roth, ability to manage tax brackets by limiting yearly conversions, reduced future RMDs, and timing flexibility to align with low-income years or deductions. Cons: small partial conversions may not meaningfully reduce large IRA balances and can leave owners paying recurring conversion taxes without lowering future RMDs; they can also keep modified adjusted gross income high enough to increase Medicare premiums for many years. Craig emphasizes that for very large IRAs ("IRA millionaires") a more aggressive conversion strategy is often better to minimize future RMD-driven taxes and Medicare-surcharge effects; he also notes limited direct benefit for owners aged about 75–76+, where heirs gain more. Includes brief CTA (like/subscribe) at the end.
Questions this video answers
About 75–76 years old.
Chapters
Hey there, this is Craig Weir. Welcome back to the channel. So you know, partial Roth conversions can be a really powerful tax strategy for a lot of people, especially those who have really significant IRA balances or maybe other tax deferred retirement assets. Partial conversions, as I'll define them here, is where you're really implementing a very kind of slow and steady approach to doing Roth conversions. Like the top of the tax bracket or top of a Medicare threshold or something like. Like that. So I have a rundown of the kind of the traditional advice regarding the pros and cons of doing partial conversions I want to share with you today. But if you're an IRA millionaire, I want you to stick around because the at the end of this I'm going to share why partial is probably not the best idea for you and what's going to be a better strategy for you to avoid a lot of tax in the future. So let's dig into the pros of doing partial Roth conversions. Well, number one, they are tax, they do provide tax free growth and withdrawals in retirement once you get the money into a Roth. So to some telling, you could actually say, well gosh, anything I get to a Roth is a good deal because I got tax free growth. And that's not a false statement at all. And I should say once the funds are in the Roth, they get to grow and whatever investments you have, they get to grow totally tax free. And that can really have a significant decrease in your tax burden in retirement because you're going to get rid of some rmd, some required minimum distributions that are going to cause taxation for the rest of your lifetime. So a second pro would be you get kind of control over your tax brackets if you do these small partial Roth conversions. So by only converting a small portion of your IRA every year, you can stay within a specific tax bracket. You can avoid the tax bracket bump that could result from doing a big full conversion. So doing it this way, it really allows you better tax manage over multiple years, especially if you have kind of an average size IRA balance. So the third pro of doing partial conversions is that you're going to reduce your requirement of distributions eventually over time. So Roth IRAs don't have RMDs for the original account owner. So converting part of a traditional IRA to Roth can actually reduce your future RMDs and the taxable income that comes from those. Also, you get some flexibility in your timing. So since you decide how much to convert each year, you get to align those conversions with the years that you have lower Income offset the conversion with other deductions like charitable giving or whatever, which can lower the impact. So all that's pretty standard stuff. But let me give you the cons. Let me give you the negative side of just doing partial Roth conversions. So partial amount may not be enough. Remember your goal, the primary goal of doing Roth conversions is to lower your future requirement of distributions. All of those RMDs are going to be taxable income to you over the rest of your lifetime. That partial may not offset those gains to that every year in your balance to actually lower your balance. So you might just pay more tax every year through doing these smaller conversions, and you still don't lower your balance. We see this a lot for people who start off kind of doing it their self and they get three or four years into a realize, hey, I'm not making any headway here. I'm not going to accomplish the regional goal. Doing these partial smaller conversions typically leads you to really just simply having that extra tax cost every year, but not really accomplishing what you're trying to accomplish. The other big one, the second and the final kind of negative of doing these partial Roth conversions is you're going to potentially have higher Medicare premiums for a long, long time. So when you convert too little of your IRA balance, it actually could push your modified adjusted gross income into some of these thresholds each and every year so that you always have Medicare premiums than if you'd have been more aggressive. Now, I know a lot of people watch those, but some people are unaware that that's a big deal. But doing the small conversions every year can actually just cost you more money for the rest of your lifetime. So, you know, each, each person has their own unique set of circumstances and situations that lend toward doing small or large conversions out of their Roth. But the less you have in an ira, the less urgent it is to do aggressive conversions. And the older you are, say over 75, 76 or so, the less you will benefit directly from the conversions. Your heirs will probably gain tremendous benefit. So we have a lot of clients that come to us at 75 or older that we help them to develop a strategy, but they know on the front end that they're going to get some benefit, but their heirs are really going to be the big winner. So look, if you're an IRA millionaire, a much more aggressive Roth conversion strategy is the only one that's going to truly maximize your tax advantages. Your future tax rate has very little to do with the conversion opportunity. Your breakeven point where your net worth is the same or not has very little to do with your breakeven strategy. We calculate all those things, but really the fact is that the sum amount of your future RMDs is really the problem for large IRA owners. I call you IRA millionaires. Those required minimum distributions are going to push you into a higher tax bracket for the rest of your life. They're going to cause higher Medicare premiums for the rest of your life if you don't get that balance down. And going to put you in a situation in each of these where you have very little flexibility over what happens when you want to take withdrawals for fun, for family, or for your faith. Check out some of the other videos. Maybe. Maybe we can get a little bit deeper into what some of the best strategies are and what some of the biggest mistakes that people make when they're doing Roth conversions. Hope this was a little bit of help to you. If you like this kind of information, hit the like button and we'd love it if you hit the subscribe button. The channel has grown tremendously over the last 90 days or so, and so we're getting a lot of people plugging into this information. I hope it is of value to you as well. Take care. Have a great day. God bless you.
