'It seems bizarre': We're in our 80s with $950,000 in traditional IRAs. Why is our adviser pushing us to do Roth conversions?

By Quentin Fottrell

'Our basic living expenses are covered by $110,000 in annual pensions and Social Security'

"Given our age, why are they pushing this?" (Photo subjects are models.)

Dear Quentin,

My husband is 85 and I am 80. We have $200,000 in his Roth and my husband has $600,000 in his IRA. I have $350,000 in my IRA. There is a brokerage account with $1 million. We have a $100,000 emergency fund. Our basic living expenses are covered by $110,000 in annual pensions and Social Security. Our home is paid for and we have another $50,000 put aside for our next vehicle.

Our financial adviser is strongly suggesting that we convert more to Roth. I'm not sure we need to. It seems bizarre. Given our age, why are they pushing this?

Octogenarian Couple

Related: 'Fancy cars hold no appeal': We have a 99% chance of outliving our life savings. Why not spend, spend, spend?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

There's more to be concerned with here than reducing taxes on your IRAs, especially in your 80s.

Dear Couple,

Oy, vey!

Would you like to do Roth conversions because you may need the money, or because you want your heirs to inherit those funds without paying tax on them? You are both in your 80s and drawing Social Security, pensions and, presumably, income from your investments, so the traditional window for Roth conversions has mostly closed.

That window usually opens wide after you retire but before you start collecting Social Security and taking required minimum distributions (RMDs). A Roth conversion could push you into a higher marginal tax bracket, because the taxable portion of the conversion is added to your ordinary income for the year.

A Roth conversion is essentially a bet that paying taxes now will save you more in taxes later, and it's a good strategy when you're earning less than you expect to. The longer the money stays put, the longer it can grow tax-free. But at 80 and 85, your calculus is different from that of someone who is 40 or 50 years of age.

How much room for maneuver do you have in your current federal tax bracket?

I'm trying to understand your financial adviser's logic and their alleged pushiness, because they seem to be pushing hard for these conversions. Since you have traditional IRAs totaling $950,000 that are subject to RMDs, they may have reasoned that converting now will reduce taxes on future distributions.

Don't take that on faith - that is, without actual evidence. Ask your adviser to show you the numbers: how much you would save by converting strategically over the next five years or so. Have them model conversions of $25,000, $50,000 and $100,000, and give you the federal tax bill and marginal rate for each.

Some questions, which you should put to your adviser: How much room for maneuver do you have in your current federal tax bracket? Has your adviser taken into account the taxes you pay or would pay on Social Security benefits and Medicare IRMAA thresholds? Would a Roth conversion be as attractive in that higher tax bracket?

Related: 'She's a Type A personality': My stepmother wants me to repay my late father's $40,000 wedding gift. Should I oblige?

Other pressing issues

I'm also curious why this is the centerpiece of the plan. Other pressing issues may deserve more attention, and I hope your adviser is raising them too. The biggest is planning for a surviving spouse, who could face a smaller standard deduction, narrower tax brackets and higher Medicare premiums. This is known as the "widow's/widower's tax."

Your heirs would likely get a "step-up in basis" on your sizable brokerage account. That would suggest you are better off keeping this intact rather than using it to pay taxes on Roth conversions from your retirement accounts. There's more to be concerned with here than reducing taxes on your IRAs, especially in your 80s.

Something that is often overlooked: The surviving spouse may not have the same financial knowledge as the one who died, so planning for that scenario should also be a focus. (Also remember that you can't use a Roth conversion to satisfy your RMDs. You must take the RMD first, and it counts as taxable income.)

Your situation is probably also quite different from most retirees in their 80s.

Why make a Roth conversion in your 80s at all? Does your adviser want you to pay tax on some of your IRA withdrawals now to make life easier for your heirs? Your adviser should be clear about their motivations, and be able to outline them on paper. For what it's worth, heirs have 10 years to withdraw money from a traditional retirement account.

Watch your Medicare premiums, too. A large conversion can push your income high enough to trigger higher Part B and Part D premiums, commonly known as the income-related monthly adjustment amount (IRMAA). Medicare looks at your tax return from two years earlier, so a conversion this year could theoretically raise your premiums in 2028.

Your situation is probably also quite different from most retirees in their 80s. You have a $1 million brokerage account, but your pension and Social Security already cover your basic expenses. If you convert in your 80s, the goal would be quite different from that of someone in their 40s or 50s who are looking for tax-free withdrawals in retirement.

For what it's worth, you're still in great shape.

Related: My abusive ex-husband promised $20,000 for our kids' education. Now he refuses to pay. Is he legally obligated?

By emailing your questions to The Moneyist or posting your dilemmas on The Moneyist Facebook group, you agree to have them published anonymously on MarketWatch.

More columns from Quentin Fottrell:

My wife cried when I found out she had only $80,000 in her 401(k). I have $2.2 million. Am I wrong to be shocked?

'She's living the dream': My stepmother said I can buy my childhood home for $850,000. Is she taking advantage of me?

My father-in-law, 81, sold his $75,000 home to pay his daughter's $50,000 debt. How can I keep him from becoming destitute?

Check out The Moneyist's private Facebook group, where members help answer life's thorniest money issues. Post your questions, or weigh in on the latest Moneyist columns.

By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

-Quentin Fottrell

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-02-26 0900ET