Ask Liz Weston

Get smart with your money

Roth conversion

Q&A: How long should I wait before withdrawing from my IRA?

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Dear Liz: My husband and I disagree over when to use pre-tax monies (e.g., IRAs). He’ll be 69, and I’ll be 67 in the coming year, so we aren’t required to take distributions yet, and he isn’t starting Social Security until 70.

He insists it’s better to use our regular assets to live on and let the IRA monies grow as long as possible. I’d rather save the regular assets (many of which have high capital gains) and leave them to our adult kids after we die.

The pre-tax funds are now $4 million. Now that our kids would have to empty the IRA accounts within 10 years (no more stretch IRAs), doesn’t that make it more reasonable to start using some of those funds now? I’m assuming the IRA balances would still be significant, even after taking required minimum distributions. I’ve gotten most of my IRA funds converted to Roth so we don’t have to take RMDs on that money, but he won’t consider conversions. Is he right about limiting our expenditures to money from the regular brokerage account? Once we start Social Security and RMDs, we’ll have to pay more taxes on any withdrawals compared to now.

Answer: A lot of savers got the message pounded into their heads that retirement accounts should be left to grow tax-deferred as long as possible. The idea was that you’d be in a lower tax bracket when you retired and were finally forced to start withdrawals. You could leave any remaining retirement money to your children and they could continue benefiting from tax deferral by extending distributions over their lifetimes.

As you note, this “stretch IRA” option is no longer available for most non-spouse beneficiaries, who must empty inherited retirement accounts within 10 years. Plus, good savers like you and your husband often face a higher tax bracket, not a lower one, when required minimum distributions begin. That further weakens the argument for delaying withdrawals as long as possible. Also, large-enough RMDs can raise your Medicare premiums and make more of your Social Security income taxable, compounding the overall cost.

From your heirs’ point of view, inheriting your Roth IRA or regular assets is a much better deal than inheriting a pre-tax IRA. Every withdrawal from the pre-tax IRA will be subject to income taxes. Not so the Roth, which offers tax-free withdrawals. Regular assets will get a new, stepped-up value at death so that no capital gains taxes will be due on the appreciation that occurred in the original owner’s lifetime.

You have a few years to make adjustments before you’re locked into RMDs. Roth conversions are one possibility, as are “proactive” withdrawals — starting distributions from your IRAs before they’re required. Additional options to explore include qualified charitable distributions (direct transfers from your IRA to a charity) and qualified longevity annuity contracts, which can provide a lifetime stream of income starting at age 85.

You’d be wise to consult a tax pro who can model different scenarios to figure out the best approach for your situation.

Q&A: Should I convert my IRA to a Roth?

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Dear Liz: I have $160,000 in a 403(b) retirement plan and I’m 70. I know I have to start taking required minimum distributions (RMDs) at age 73. Should I transfer the funds to a Roth IRA or can I start taking the RMD from the 403(b) and leave the remainder to grow?

Answer: You can take your RMDs from the 403(b). Transferring the money to a Roth IRA would be known as a conversion, and that could make the entire amount taxable.

Late-in-life conversions can make sense if future RMDs will push you into a higher tax bracket than you are now, or if you’re willing to pay the tax bill to provide future tax-free income to your heirs. (Roths don’t have RMDs, so the account can be passed intact to your beneficiaries, who will usually have 10 years to drain the account.) Conversions can have other consequences, such as raising Medicare premiums, so a tax pro’s advice should be sought before proceeding.

Q&A: How to avoid or reduce taxes on required minimum distributions

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Dear Liz: I’m confused about required minimum distributions from my retirement accounts. I’d like to avoid taxes on my withdrawals, but it seems there is no way to avoid them. Please give me some guidance.

Answer: If you got a deduction for contributing this money, and you want to keep the funds you’re required to withdraw, then yes, you have to pay taxes on these distributions.

Required minimum distributions from retirement accounts currently have to start at age 73. There are a few exceptions. Roth accounts don’t offer deductions on contributions and also don’t have RMDs. You can postpone RMDs from a workplace plan such as a 401(k) or 403(b) as long as you’re still working for the employer that sponsors the plan, the plan offers this “still working” option, and you don’t own 5% or more of the company.

If you don’t need the money, you could consider donating your required minimum distribution to charity. Known as “qualified charitable distributions,” these donations can start as early as age 70½. As long as the money goes directly from an IRA to a qualified nonprofit, you can avoid paying taxes on the distribution. For 2025, the maximum qualified charitable distribution is $108,000 per individual. (You can’t make a qualified charitable distribution from a workplace plan, but you can roll some or all of the account into an IRA and make the donation from there.)

Sometimes RMDs can be large enough to catapult savers into a higher tax bracket and trigger higher Medicare premiums. If that’s the case, and you’re still a few years away from starting RMDs, consider talking to a tax pro about ways to manage the tax bill. Starting distributions early or converting some funds to a Roth IRA might be options.

Q&A: When it comes to Roth IRAs, 59½ and 5 are the magic numbers

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Dear Liz: You recently answered a question about Roth conversions, saying that each conversion triggered its own five-year holding period. It was my understanding that after age 59½, the five-year rule doesn’t apply and earnings aren’t taxed.

Answer: The rules for Roth IRAs can be complicated, and they’re different for accounts that you fund directly versus those that are funded through conversions.

If you contribute directly to a Roth, you can withdraw your contributions any time without tax or penalty. You can withdraw earnings tax free if you’re 59½ or older and the account has been open for at least five years.

But as mentioned in the previous column, the five-year holding period applies to each conversion you make from another retirement account into a Roth. What goes away after age 59½ is the 10% penalty for early withdrawal, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. Earnings withdrawn before five years can be taxed as income. However, it’s assumed that any withdrawals are principal first, so you’d have to withdraw the entire conversion amount before earnings would be taxed.

Luscombe notes that some people set up separate accounts for each conversion to make tracking the five-year periods easier. That could be especially helpful if they plan to make substantial withdrawals that could include earnings before the last conversion amount hits its five-year mark. Once all the five-year periods have expired, the accounts can be combined into one.

Q&A: Roth conversions and holding periods

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Dear Liz: Eight years ago I converted a number of stocks from an IRA to a Roth IRA and paid the taxes. Now I am in a position to convert the last shares but want to do it incrementally over the next four years. Does each conversion then require its own five-year waiting period or will anything in the existing Roth now qualify to be withdrawn at any time?

Answer: The IRS requires five-year holding periods before earnings can be withdrawn tax-free from Roth accounts. The five-year rule applies separately to each Roth conversion, so the partial conversions you’re contemplating will each have their own five-year holding period, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

That’s different from regular Roth accounts, where the five-year rule starts the year the account was first opened and isn’t triggered again by subsequent contributions, Luscombe says.

Q&A: Need help with your IRA? Call a CPA, or maybe a PFS

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Dear Liz: My husband and I have substantial pre-tax savings in our workplace retirement plans and IRAs. Based on where those balances would be in retirement, we would definitely be paying more in taxes than now, and face the potential of running out of money if forced to withdraw it all. You often refer people to the Garrett Planning Network for fiduciary financial planners. Is there a similar organization for tax planners who can provide a strategy for rolling over our pre-tax accounts in order to take part of the hit now, and reduce taxes later? The financial planners we’ve found through Garrett have some tax knowledge, but refer us to tax professionals for more in-depth tax analysis.

Answer: Many fee-only financial planners work with tax professionals such as certified public accountants — CPAs — to craft Roth conversion plans that can reduce future taxes. If you want an all-in-one pro, though, you could consider hiring a CPA who is a personal financial specialist, or PFS. The PFS credential is similar to the certified financial planner credential, but is granted only to CPAs. To find one in your area, you can use the American Institute of CPAs’ directory at https://www.aicpa-cima.com/directories. Click the plus sign next to “Find a credential/designation holder,” select “PFS” in the box titled “Credential/designation name” and then input your location.