Roth Conversions: Things to review before year-end

As we get closer to the end of the year, it’s a good time to revisit one of the tax-planning strategies that can make a difference for some clients: Roth conversions.

The idea is pretty straightforward.

A client moves money from a tax-deferred retirement account into a Roth account, pays tax on the amount converted, and potentially benefits from tax-free growth and qualified withdrawals in the future.

But here’s the thing: a Roth conversion isn’t automatically the right move for everyone. The goal isn’t simply to move money into a Roth. It’s to understand whether paying taxes today could put a client in a better position down the road.

With December 31 approaching, here are a few dos and don’ts worth keeping in mind.

DO: Look at the bigger picture

Before recommending a conversion, take a step back and look at the client’s overall tax situation.

What does their income look like this year?

Could they be in a higher tax bracket in retirement?

How might a conversion affect their other tax considerations?

Sometimes, paying taxes today can make sense. Other times, it may create a bigger tax bill than necessary. The numbers should guide the decision.

DON’T: Wait until the last minute

This is one of the easiest mistakes to avoid, yet it happens every year.

A Roth conversion intended for the current tax year must be completed by December 31. Starting the process on the last business day leaves very little room for delays, paperwork, or custodian processing times.

If a conversion makes sense for your client, start the conversation early enough to get everything completed.

DO: Have a plan for the tax bill

A Roth conversion can increase a client’s taxable income for the year. Before moving forward, make sure you’ve considered how the additional income fits into the client’s overall tax plan.

It’s also worth discussing how they’ll cover the resulting tax liability and whether estimated tax payments may be needed. The conversion itself is only one part of the decision.

DON’T: Assume you can change your mind later

Once a Roth conversion is completed, it generally can’t be reversed. That’s why it’s important to review the potential tax impact before taking action.

Make sure the decision fits the client’s goals, current circumstances, and long-term retirement plan. A little extra planning upfront can help avoid an expensive surprise later.

Roth conversions can be a valuable part of retirement tax planning, but timing and strategy matter.

The best decisions come from looking beyond the immediate tax bill and understanding how today’s choices could affect a client’s financial future.

Before the year ends, take another look at the clients who might benefit from a Roth conversion. If the strategy makes sense, give yourself enough time to work through the details.

Good tax planning isn’t about making a move just because a deadline is approaching. It’s about knowing which moves make sense for your client and making them at the right time.

Want to build your knowledge of retirement tax planning?

Retirement Tax Services Essentials covers Roth conversions and other key tax planning strategies to help you better understand the tax impact of your clients’ financial decisions and bring more informed conversations to your client meetings.

Happy Tax Planning,
Steven Jarvis, CPA