I'm 62 With $1.6 Million in My 401(k). Should I Convert to a Roth IRA to Avoid RMDs?

Converting your 401(k) to a Roth portfolio will allow you to entirely avoid required minimum distributions (RMDs). However, just because it’s permitted does not necessarily mean it’s in your long-term best interest. Particularly for households approaching retirement, a Roth conversion may result in a net loss. Put another way, there’s a chance that the tax costs of making those conversions will end up outweighing the tax benefits of avoiding RMDs.

For help weighing your options, consider matching with a fiduciary financial advisor who can help you determine what makes sense for your situation..

What Are RMDs?

Starting at age 73 (or 75 starting in 2033), the IRS requires you to begin taking regular, minimum withdrawals, or RMDs, from every pre-tax retirement account. This includes 401(k) plans and traditional IRAs.

The exact amount of an RMD is based on your age and the portfolio’s total value on Dec. 31 of the previous year. You have until the end of each year to make the withdrawal, meaning you can take your RMD in any amount at any time by or before December 31. If you don’t take your minimum distribution, the IRS charges a tax penalty, which is typically 25% of the amount not withdrawn (10% if corrected within two years).

Plan ahead for taxes and cash flow with SmartAsset’s RMD Calculator. Get a quick estimate of your required withdrawals so you can make informed financial decisions.

Required Minimum Distribution (RMD) Calculator

Estimate your next RMD using your age, balance and expected returns.

Quickly estimate your RMDs and when to take them

RMD Amount for IRA(s)

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RMD Amount for 401(k) #1

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RMD Amount for 401(k) #2

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About This Calculator

This calculator estimates RMDs by dividing the user's prior year's Dec. 31 account balance by the IRS Distribution Period based on their age. Users can enter their birth year, prior-year balances and an expected annual return to estimate the timing and amount of future RMDs.

For IRAs (excluding Roth IRAs), users may combine balances and take the total RMD from one or more accounts. For 401(k)s and similar workplace plans*, RMDs must be calculated and taken separately from each account, so balances should be entered individually.

^*The IRS allows those with multiple 403(b) accounts to aggregate their balances and split their RMDs across these accounts.

Assumptions

This calculator assumes users have an RMD age of either 73 or 75. Users born between 1951 and 1959 are required to take their first RMD by April 1 of the year following their 73rd birthday. Users born in 1960 and later must take their first RMD by April 1 of the year following their 75th birthday.

This calculator uses the IRS Uniform Lifetime Table to estimate RMDs. This table generally applies to account owners age 73 or older whose spouse is either less than 10 years younger or not their sole primary beneficiary.

However, if a user's spouse is more than 10 years younger and is their sole primary beneficiary, the IRS Joint and Last Survivor Expectancy Table must be used instead. Likewise, if the user is the beneficiary of an inherited IRA or retirement account, RMDs must be calculated using the IRS Single Life Expectancy Table. In these cases, users will need to calculate their RMD manually or consult a finance professional.

For users already required to take an RMD for the current year, the calculator uses their account balance as of December 31 of the previous year to compute the RMD. For users who haven't yet reached RMD age, the calculator applies their expected annual rate of return to that same prior-year-end balance to project future balances, which are then used to estimate RMDs.

This RMD calculator uses the IRS Uniform Lifetime Table, but certain users may need to use a different IRS table depending on their beneficiary designation or marital status. It's the user's responsibility to confirm which table applies to their situation, and tables may be subject to change.

Actual results may vary based on individual circumstances, future account performance and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee future distribution amounts or account balances. Past performance is not indicative of future results.

SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.

Like all withdrawals, you will have to pay ordinary income taxes on your RMDs. This can create a problem if you need less money than your minimum distribution was for, such as if you have other sources of income or multiple retirement accounts. In that case, you might prefer to leave the money in place for tax-free growth rather than pay income taxes on an unnecessary distribution.

One solution to this is converting your pre-tax portfolio to a Roth account, since the IRS does not require RMDs from Roth accounts.

How Do Roth Conversions Work?

A Roth conversion is when you move money from a pre-tax retirement account, such as a 401(k), to a post-tax Roth IRA.

Mechanically, the process is typically simple: You open a Roth IRA with a qualified brokerage. Then, you can instruct your plan manager to transfer the assets from your pre-tax portfolio to the Roth IRA. Alternatively you can withdraw the funds yourself and deposit them in the new account. If you move the money on your own, you have 60 days to deposit it into the Roth portfolio, or you’ll face taxes and, potentially, early withdrawal penalties.

There is no limit on how much money you can convert each year, nor is there a limit on how often you can do so. But tax implications may make you think twice about how much you convert in any given year.

Tax Implications of Roth IRA Conversions

You must pay income taxes on the full amount that you convert. Any amount of money that you convert to a Roth IRA will count toward your taxable income for that year.

For example, if you convert $160,000 from your 401(k) to a Roth IRA, you will add that $160,000 to your taxable income for that year. If you are under age 59 ½, you will need to have the cash on hand to pay that tax bill. If you are older, you can take the money for taxes from your retirement account. In any case, this will reduce your potential savings and investment capital.

Once you make a Roth conversion, though, these assets will continue to grow tax-free. For qualified retirement distributions, you will also pay no taxes when you withdraw the money later in life, and it will not count toward your overall taxable income.

Staggering Conversions to Reduce Taxes

A staggered Roth conversion is often effective at reducing the overall impact of conversion taxes. This approach allows you to manipulate your withdrawals to prevent yourself from climbing into a higher tax bracket, at least to some degree.

Take our example here: Setting aside other sources of income for the year, say that you want to convert $1.6 million from a 401(k) to a Roth IRA. You could either do so in a lump sum in one year, or in transfers of $160,000 each over the course of 10 years (not accounting for portfolio growth during that time or future tax changes). Assuming you’re a single filer in 2025, here’s how your income taxes would compare with each option:

Lump sum transfer:

Annual taxable income: $1.6 million
Total taxes: $592,000

Staggered transfer:

Annual taxable income: $160,000
Annual taxes: $27,467
Total taxes: $274,670

As you can see, by converting your money in stages, less of it is exposed to the top tax brackets, reducing your overall payments.

If you are making staggered conversions near your retirement age, just keep in mind that the five-year rule applies. In the case of conversions, this means that you must wait five years before taking a qualified withdrawal on converted funds unless you are older than 59 ½.

Bottom Line

By converting your 401(k) into a Roth IRA, you can entirely avoid having to take RMDs and paying taxes on them. However, this will trigger up-front conversion taxes. The closer you are to retirement, the more likely it is that those conversion taxes will swamp any benefits. As such, before making any moves, it’s important to run the numbers and potentially consider consulting a financial advisor for advice.ger up-front conversion taxes. The closer you are to retirement, the more likely it is that those conversion taxes will swamp any benefits.

Tips for Managing Your RMDs

Whether you would like to maximize portfolio growth, have multiple streams of income or want to leave assets in place for your heirs, minimizing RMDs is often an important part of retirement planning. Here are six strategies that can help make that happen.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.