Retirement Account Tax Strategies: Traditional vs. Roth and When to Convert

Retirement account decisions made today have tax consequences that will play out over decades. Understanding the traditional vs. Roth choice — and how conversion strategies fit in — is one of the most valuable areas of tax planning available to individuals at virtually every income level.

Traditional vs. Roth: The Core Trade-Off

Traditional IRA and 401(k) contributions are made with pre-tax dollars (deductible, reducing current taxable income), grow tax-deferred, and are taxed as ordinary income when withdrawn in retirement. Roth contributions are made with after-tax dollars (no current deduction), grow tax-free, and qualified withdrawals in retirement are entirely tax-free.

The fundamental question: do you expect your tax rate to be higher now or in retirement? If you are in a higher bracket now and expect to be in a lower bracket in retirement, traditional accounts save more tax. If you are in a lower bracket now and expect higher rates in retirement (or if tax rates broadly increase), Roth accounts are more advantageous. For young, lower-income earners, the Roth is almost always superior.

Required Minimum Distributions (RMDs)

Traditional accounts require minimum withdrawals beginning at age 73 (as of SECURE Act 2.0). These RMDs are taxable and can push you into higher brackets, increase Medicare premiums, make more Social Security taxable, and reduce the estate value passed to heirs. Roth IRAs have no RMDs during the owner's lifetime. For retirees with substantial traditional account balances, RMDs can become a significant and unwelcome tax event.

Roth Conversion Strategies

A Roth conversion involves moving money from a traditional IRA or 401(k) to a Roth account, paying income tax on the converted amount. The converted amount is added to your taxable income for the year of conversion. Strategic conversions during low-income years — early retirement, years with large deductions, years before Social Security begins — allow you to fill lower tax brackets at favorable rates. Evaluate conversions carefully: the tax paid now must be weighed against the future tax savings from tax-free Roth growth.

Backdoor Roth IRA

High-income earners above the Roth IRA contribution limits ($161,000 single / $240,000 married in 2024) can use the "backdoor Roth" strategy: contribute to a traditional IRA (non-deductible), then immediately convert to a Roth. The conversion is tax-free as long as you have no other pre-tax traditional IRA funds (due to the pro-rata rule). If you do have other traditional IRA funds, the conversion will include a taxable portion.

Contact our tax professionals to discuss retirement account strategy, or explore our resources for retirement planning calculators.