Five Reasons Roth Conversions and Pensions Work Well Together

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For many retirees, navigating income planning and tax strategies can be complex, especially when considering Roth conversions alongside pension income.

Roth conversions may not be the right strategy for everyone, but for those retiring with a pension, it can start to make more sense for the reasons mentioned here. In this article, I unpack why Roth conversions might be a good fit if you're a retiree with a pension.

What is a Roth conversion?

Before diving into the reasons for implementing a Roth conversion, it is essential to understand the fundamental concept behind it. A Roth conversion involves transferring money from a tax-deferred account, such as a traditional IRA, 403(b), or 401(k), to a Roth IRA.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

This involves paying taxes on the converted amount in the tax year the conversion happens, but it allows the money to grow tax-free thereafter.

Is a Roth conversion right for you? There are some important considerations to keep in mind before deciding to convert to a Roth:

1. Anticipated higher tax brackets

You might expect to be in a higher tax bracket during retirement if you have a pension. Even if your current tax bracket remains constant, factors like Social Security, required minimum distributions (RMDs) and investment withdrawals could elevate your taxable income.

Also, with tax rates among historical lows, many people suggest tax rates might only increase. A Roth conversion allows you to lock in today’s lower tax rates, potentially saving money in the long run.

Example: Consider a retiree who receives $60,000 from a pension and an additional $30,000 from Social Security. Adding RMDs could push them into the same or higher tax bracket than when they were working, increasing their overall tax liability each year.

2. Impact on Medicare premiums (IRMAA)

Medicare Part B and D premiums are determined by your income level, where higher income results in higher premiums because of the income-related monthly adjustment amount, known as IRMAA.

Retirees could lower their Medicare premiums by reducing taxable income through Roth conversions, an often-overlooked saving.

Example: A retiree with a high pension might see a significant increase in Medicare premiums, while strategic Roth conversions can ease this financial burden.

The term "Social Security tax torpedo" refers to the surprisingly high taxes retirees can face on Social Security benefits due to their provisional income. For some, up to 85% of their benefits may become taxable.

Roth conversions can strategically reduce provisional income, thus minimizing taxable Social Security benefits. By carefully planning Roth conversions, retirees can reduce their provisional income and potentially reap significant tax savings on their Social Security benefits.

4. Unnecessary RMDs and legacy planning

If you are fortunate enough not to need RMDs from your accounts to cover your expenses, converting to a Roth can make a lot of sense. Roth IRAs do not require withdrawals, allowing your investments to grow tax-free.

This strategy is particularly appealing if you wish to leave money as an inheritance for your loved ones.

Example: Consider a 60-year-old retiree with $1 million in a Roth IRA. This could compound to $5 million-plus by age 90, tax-free.

5. Mitigating the widow's penalty

Upon the death of a spouse, the surviving spouse often faces higher tax rates due to the loss of tax benefits associated with a "married filing jointly" status.

A Roth conversion can alleviate this widow’s penalty by easing the tax burden on the surviving spouse with tax-free funds available from a Roth IRA.

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Navigating retirement income strategies can seem daunting, but with proactive steps like Roth conversions, retirees can better manage their taxes and overall financial health. Strategic planning is extremely important if you have diligently saved and have a pension.

Our firm specializes in planning for what we call The 2% Club: those who have pensions and $1 million or more saved for retirement.

At the end of the day, the goal is not merely to have more money but to optimize the money you have through smarter planning. Understanding how a Roth conversion works and when it might make sense to implement offers a pathway to not only preserve your wealth but also to enhance your financial legacy.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.