Advisor wants me to convert part of my rollover IRA to Roth before I turn 65. Good idea or a sales pitch?

Some of you may remember I was agonizing about when to claim. We landed on me waiting until 67 and bridging the gap from my old 401(k), which I've since rolled into an IRA at a fee-only advisor. So far so good.

Now the advisor's brought up something new and I want a gut check before I sign anything. Because I'm 63, retired, and NOT yet collecting Social Security, my taxable income is unusually low for the next few years, basically just what I pull from the IRA to live on. He says this is a rare window to convert a chunk of the traditional IRA to a Roth each year, pay the tax now while I'm in a low bracket, and never pay tax on that money again. He wants to convert enough to "fill up" the 12% bracket annually.

My problem is I can't fully tell the difference between good advice and a nudge to keep money moving. This is a fee-only guy, flat fee, no product to sell me, which is the whole reason I picked him, so I'm inclined to trust it. But paying a tax bill NOW, voluntarily, when nobody's making me, feels insane after a lifetime of deferring it. Is this a real strategy or am I being talked into something? What am I not seeing?

It's real, and I'll give you the reason from the far end of it. I'm 73 and just started required minimum distributions, and the thing nobody tells you at 63 is that the traditional IRA you're deferring becomes a bill that comes due whether you want the money or not. All those years I "won" by deferring, I just built a bigger pile the government now forces me to withdraw and pay tax on, at exactly the age my income is already higher. If I'd converted some in my quiet early-retirement years the way your guy is describing, my RMDs today would be smaller. So no, filling a low bracket on purpose isn't crazy. Wish I'd done it.

One caution from someone who got burned by a detail, not the strategy itself. Whatever you convert lands on your income for that year, and there are things two years down the line that watch your income. Do it in a year you're also doing something else big and you can trip a wire you didn't know was there. I won't try to explain the mechanics, I'll leave that to Linda or Daniel, but ask specifically about how each year's conversion affects your Medicare premiums later. That's the question I didn't know to ask.

gary1957 said:

paying a tax bill NOW, voluntarily, when nobody's making me, feels insane

Gary, I sat exactly where you're sitting, so let me answer as someone a few steps down the same road, not as an advisor. Short version: a Roth conversion is a genuine strategy, not a sales trick, and the low-income years after you retire and before Social Security and required withdrawals kick in are the textbook window for it. What your fee-only guy described is the standard version of it. Whether it's right for YOUR numbers is the part neither he nor I can settle in a forum, but here's the shape of it so you can ask better questions.

What you're actually buying: you pay ordinary income tax now on the amount you move, and in exchange that money grows and comes out tax-free forever, with no required minimum distributions on it later. Richard just described the flip side of not doing it, the deferred pile that turns into forced, taxable withdrawals at 73. "Filling up the 12% bracket" means converting just enough each year to reach the top of that bracket without spilling into the next one, so you're deliberately paying tax at a low rate you may never see again once Social Security and RMDs stack on top. The mechanics of the traditional-versus-Roth trade are laid out in traditional vs Roth if you want the fuller version.

Now the conditions and the traps, because this is where "good idea" turns into "good idea for the wrong person." First, Carolyn is pointing at a real wire: Medicare uses a two-year lookback, so a conversion you do at 63 can raise your Part B and Part D premiums at 65, and it's a cliff, one dollar over a threshold bumps the whole surcharge. That doesn't mean don't convert, it means size each year's conversion with that threshold in view. I wrote up how that surcharge works in Medicare's income surcharge. Second, pay the tax from money OUTSIDE the IRA if you possibly can; using the IRA itself to pay the tax shrinks the whole point and can mean an early-withdrawal penalty if you're under 59 and a half, though at 63 you're clear of that. Third, conversions are irreversible now, there's no undo, so you don't want to convert a big chunk in a year that turns out to have other income you forgot about. Fourth, don't ignore state income tax, some people convert after moving to a lower-tax state. And the honest exception: if you'll actually be in the same or a lower bracket for the rest of your life, or you need that money within five years, the case gets much weaker.

The reason I trust your setup more than most: a flat-fee advisor with nothing to sell has no reason to push conversions except that the math works for you, which is the opposite of the annuity "consultant" I hung up on years ago. Ask him to show you the projected RMDs and tax bracket at 75 with and without the conversions, in actual dollars. If he can put that on one page, you'll see the answer yourself. A tax professional running your real return for the year is the other half of the team, and that's exactly what they're for.

Following hard. I've got four old accounts I'm still untangling and I'm a few years behind you, so this "quiet window before Social Security" idea is new to me and kind of blowing my mind. The part that lands is Richard's, that deferring forever isn't actually a win, it's just a bill I'm mailing to my 73-year-old self. Going to ask my own person about it.

Update. Went back to the advisor with the exact request Linda suggested, show me RMDs and my bracket at 75 with and without, one page, real dollars. He did, and it wasn't close, the no-conversion version had me pushed up a bracket in my mid-70s and paying more over time. We're converting a modest amount this year, sized to stay under both the 12% bracket top AND the first Medicare threshold two years out, and reassessing each year rather than committing to a big number up front. Paying the tax from a taxable account, not the IRA. Still feels strange writing that check on purpose, but I understand WHY now, which is all I wanted. Thanks all.