The RMD "Tax Bomb" Myth and Roth Conversion Hype

This is a member post from Krystal Fortner, CFP®, an advice-only financial planner in the Advice-Only Network.

This month, I want to talk about Roth conversions. It is probably one of the most hyped financial topics on social media, and I get a lot of requests from clients to see Roth conversions in their financial plans. You've no doubt heard about the "tax bomb" waiting for you when your Required Minimum Distributions (RMDs) start from your retirement accounts, which usually begins at age 73 for those of you born between 1951 and 1959, or 75 for those of us born in 1960 or after. That's the age at which the IRS requires you to take a portion out of your tax-deferred IRAs, 401(k)s, 403(b)s, and similar accounts. Because Roth funds are not subject to RMDs, lots of people tout Roth conversions as THE thing that is going to save you from this impending tax bomb. As with most everything in finance, there is no clear cut answer, and it depends on lots of different factors. So I'm going to talk through some cases in which Roth conversions make sense and when they don't.

The Reality of the RMD Tax Bomb

A Roth conversion is simply an exercise in tax rate arbitrage. The question that matters is: Is your marginal tax rate today lower than your marginal tax rate will be in the future? And how in the world can anyone answer this with any certainty? To find your 2025 marginal tax rate, locate the amount listed on line 15 of your 1040. This number is your taxable income. Then figure out where that amount falls given your filing status here. For example, if you are single and your taxable income was $112,538, your marginal tax rate is 24%.

People often assume their taxes will be higher in retirement, but the opposite is usually true. I've been doing this work long enough to know that when you are working, you are usually paying more in taxes than when you are retired. You are paying federal income taxes, payroll taxes or self-employment taxes, net investment income taxes, state income taxes (for most of you), and more. When your income stops, guess what? Your taxes go down! You are no longer paying your share of the payroll taxes, your federal and state income taxes go down, and your lifestyle is often funded by a mix of taxable accounts and cash. Cash and taxable accounts are some of the most tax-advantaged accounts available since you are only taxed on the interest, dividends, and profits. And if you held the investment for more than a year in those taxable accounts, the profits are taxed at the lower capital gains rate.

When you are working, your employer is withholding some of your income to pay for your taxes. You find out if they withheld too much or too little when you file your return. When you are retired, there is no employer to withhold funds for taxes, so you make estimated tax payments each quarter, or you withhold some from your IRA distributions. I believe retirees are more convinced that their taxes go up in retirement because they actually have to make the payments themselves rather than see them withheld on a paystub! The mere act of having to write the check or click "Pay" on the IRS website somehow is more painful than having taxes taken from your income by your employer.

But what about that RMD tax bomb? First of all, let's talk about the actual amount of the RMD as a percentage of the account. Depending on when you have to take your first RMD, it starts around 3.7% of the account balance on December 31 of the prior year. It's only 3.7%! On a $2 million IRA, that's about $74,000. That is a fraction of the overall account size, in my opinion. The percentage you have to withdraw does go up incrementally each year, but after having (hopefully) several decades of compounded, tax deferred growth, being required to take out a small sliver each year is not as painful as the media would have you believe. Compare the size of your RMD to the size of your account, and you may discover that your RMD is not a "tax bomb" after all.

The new senior tax deduction started in 2025 and provides up to $6,000 in tax deductions for people age 65 and over, subject to income limits. Why am I pointing this out? Tax laws change, and this new deduction lowered taxes for many people. New deductions and credits are introduced, brackets change, and sometimes, deductions and credits get eliminated (hello, residential clean energy credit). It is why we need to review your financial plan and tax strategy each year, because what may make sense in 2026 may not make sense in 2027.

And for you history buffs, here's a nice, little summary of the top tax rates since 1913. They've hovered between 28% and 40% since 1987. They definitely have not gone UP in the last four decades, and in fact, they went down in 2018 and have stayed there for the past eight years!

Now that we've talked about what marginal tax rates are, the myths of tax increases, and the differences of paying your own taxes vs. your employer doing it for you, let's move on to some real life cases in which Roth conversions make sense and when they don't.

When Conversions DO NOT Make Sense

• The Peak Earning Years: Imagine a 55-year-old married person making $250,000 at the top of their career in the 24% tax bracket. Converting $50,000 of pre-tax IRA money today forces them to pay $12,000 in federal taxes just to protect a future retirement self who might only be in the 12% or 22% bracket once salary drops to zero. This one is a no-brainer to me.
• The Charitable Giver: If you plan to give to charity in retirement, converting pre-tax dollars today wastes a valuable tax break. Starting at age 70½, you can use Qualified Charitable Distributions (QCDs) to send pre-tax IRA money directly to a charity completely tax-free. If you are in the RMD phase, a QCD can satisfy your RMD, meaning some or all of your RMD is excluded from your taxable income. (In 2026, the QCD limit is $111,000.)
• Paying Taxes from the IRA: If you do a $30,000 conversion and don't have liquid cash in a savings account to pay the tax bill, you have to withhold taxes directly from the IRA. This just doesn't make good financial sense.
• No Children: A Roth IRA is a great account to inherit because it is tax-free (even if the beneficiary has to take annual RMDs from an inherited Roth IRA, those RMDs are tax-free). If you don't have children, doing Roth conversions and paying the taxes in your lifetime usually is not the best financial move because there's no one to inherit tax-free funds. Although, you may have other beneficiaries who would love to inherit tax-free funds!

When Conversions DO Make Sense

• The Golden Years of Early Retirement: Consider a couple who retires at age 62, delays Social Security until 70, and lives off taxable savings for a few years. Their taxable income will likely fall into the 10% or 12% bracket. This window is the prime time to intentionally convert pre-tax IRA dollars at a lower tax rate before Social Security and RMDs begin.
• The Unusually Low-Income Year: If you take a career sabbatical, experience an unexpected business loss, or incur lots of itemized deductions (like significant medical expenses), your tax bracket may temporarily drop. Converting dollars during an artificially low-income year lets you pay lower taxes on money you shift to the Roth.
• The Legacy Arbitrage: Imagine being in the 35% tax bracket and inheriting a $1 million pre-tax IRA in which you have to deplete the account within ten years and may be subject to annual RMDs. That would really increase your taxable income. If you are in a low tax bracket today (say 12%), but your heirs are high-earning professionals in the 32%+ bracket, converting money now can save your beneficiaries a fortune.

Related reading: Do You Need a Financial Advisor for a Roth Conversion?

We Can Stop Using the Term "Tax Bomb" Now

I sometimes wish finance was more straightforward, consistent, and that I didn't have to say, "Well, it depends," but here we are. It's why we review things regularly to make sure we're on the right track. We keep our eye on our immediate needs while also planning for all the unknowns of the future. And we embrace our plans when they are good enough.

If you are thinking about your future RMDs and Roth conversions, let's look at the actual projections. We can look for those Golden Years and decide together if Roth conversions are a good fit for you and your financial plan.

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Important Reminder: This information is intended for educational purposes and to help you think strategically about your goals. It should not be construed as specific tax advice. I highly recommend reviewing any potential changes to your withholding or contributions with your tax preparer to ensure they align with your specific filing situation.

P.S. What am I reading this month? The Art of Taking It Easy by Dr. Brian King.

P.P.S. Have you seen the new Social Security website? SSA recently redesigned their website, and it is much more user-friendly. Your task for this month is to log in to your account, play around with the new interface, and review your earnings history. Your future benefits are based on that history, so it is critical to verify that they have your past income recorded accurately!