I’m 63 With $700k in an IRA. Should I Convert $70k per Year to Avoid RMDs and Taxes in Retirement?

You can make a Roth IRA conversion at any time, as long as you have money in a qualifying pre-tax account. But the real question is whether it benefits you. Converting in your 60s, for example, can help you avoid required minimum distributions (RMDs) and future taxes on qualified withdrawals. However, doing so later in life can also mean paying a large tax bill without giving funds much time to grow tax-free. To help you determine whether this strategy is a good fit for your retirement, let’s walk through an example of a 63-year-old who wants to convert $70,000 annually from an IRA to minimize RMD taxes.

If you are considering a Roth conversion, a financial advisor can run projections to show you how this strategy could affect your long-term finances.

What Is a Roth Conversion?

A Roth conversion is a common tax strategy that involves moving money from a pre-tax retirement account, such as a traditional IRA or 401(k), into a Roth IRA. This can be done by taking a distribution from the pre-tax account and depositing it into a Roth IRA, or by transferring the assets directly. You can convert any amount as often as you choose, provided that funds come from a qualifying pre-tax account. Note that you will be subject to income taxes on any converted amounts.

Once the money is in a Roth IRA, it grows tax-free, and qualified withdrawals in retirement are not included in your taxable income. A Roth IRA also does not require annual minimum distributions, which may help you manage taxable income in retirement and limit the impact on items like Social Security taxation and Medicare income-related premiums. Your heirs can also take withdrawals without income tax if they follow Roth rules.

Each conversion is subject to the five-year rule. Converted amounts must remain in the account for five years to avoid early-withdrawal penalties if you are under age 59 ½. Earnings must also meet their own five-year requirement to be withdrawn tax-free. If you are older than 59 ½, the penalty on converted amounts does not apply, but the five-year rule still affects whether earnings qualify for tax-free treatment.

The main cost of a Roth conversion is the income tax you owe in the year you convert the funds.

What Are Roth Conversion Taxes?

When you make a Roth conversion, you include the amount converted in your taxable income for the year. This means that you must pay income taxes on that money. If you’re over age 59 ½, you can use your retirement account to cover these additional taxes. Those under 59 ½ need to have the money available from other sources.

Converting retirement funds creates two separate costs. Using the account to pay taxes reduces the balance immediately. Using outside money diverts cash you could have invested in a taxable portfolio. Either choice affects how much you keep working for future growth. As an example, let’s break down annual conversions from a $700,000 IRA.

A single-year conversion adds the full $700,000 to your taxable income. Using the 2026 single-filer brackets, the tax on that amount would be about $214,957, which produces an effective rate of 30.71%. Paying the bill from the IRA would leave about $485,043 in the account after taxes.

Here are the steps for the 2026 calculation:

• First $12,400 at 10% = $1,240
• Next $38,000 at 12% = $4,560
• Next $55,300 at 22% = $12,166
• Next $96,075 at 24% = $23,058
• Next $54,450 at 32% = $17,424
• Next $384,375 at 35% = $134,531.25
• Final $59,400 at 37% = $21,978

Total tax = $214,957.25 (rounded to $214,957)
Effective rate = total tax ÷ conversion amount ($214,957.25 ÷ $700,000) ≈ 0.3071 (30.71%)
After-tax Roth amount if taxes come from the IRA = about $485,043

Converting $70,000 each year for 10 years produces a different result than converting $700,000 at once. Using the 2026 single-filer brackets, the tax on a $70,000 conversion would be about $10,112, an effective rate of about 14.45%.

Over 10 years, the cumulative tax on $700,000 of conversions would be about $101,120, which is less than half of the $214,957 owed on a single-year conversion in this example. Note that this example assumes each $70,000 conversion is taxed using the 2026 single-filer brackets and that no other taxable income, deductions or credits are included in the calculation.

Accounting for Growth

When planning a Roth conversion, it’s important to consider how much your investments could grow over time. Money used to pay conversion taxes is money that can no longer grow in your retirement account.

Say you have $700,000 in a traditional IRA and plan to retire in five years at age 68. You expect your investments to earn an average annual return of 8%. You have two options:

• Keep your traditional IRA: Your $700,000 could grow to about $1,028,530 in five years. With a 4% annual withdrawal, you could take out roughly $41,141 per year before taxes.
• Convert to a Roth IRA: If you use $214,957 from your IRA to cover conversion taxes, you would have about $485,043 left in your Roth IRA. After five years of growth, that could become approximately $712,687. A 4% annual withdrawal would provide about $28,507 in potentially tax-free income.

These estimates assume a steady 8% annual return, which isn’t guaranteed. Roth withdrawals are tax-free only when they meet IRS requirements. The actual tax cost of a conversion also depends on your income, filing status and deductions.

How Gradual Roth Conversions Affect Growth

Instead of converting the entire $700,000 at once, you could spread the conversions over several years. This may help limit your annual tax bill, but it also means some of your money will remain in the traditional IRA and continue growing.

Suppose you convert $70,000 each year and pay $10,112 in taxes on each conversion. That leaves $59,888 to move into your Roth IRA annually.

If both accounts earn 8% annually and you convert the money at the beginning of each year, your balances could look like this:

After 10 years, you could have approximately $936,977 in your Roth IRA. However, you would still have $416,063 in your traditional IRA, which would generally be subject to income taxes when withdrawn and eventually to required minimum distributions (RMDs).

The reason is simple: Even though you’re converting $70,000 each year, the money left in your traditional IRA keeps earning returns.

How Much Would You Need to Convert Each Year?

If your goal is to convert the entire $700,000 traditional IRA over 10 years, you would need to account for that growth.

Assuming an 8% annual return and conversions at the beginning of each year, you would need to convert approximately $97,063 annually to empty the account over 10 years.

Larger conversions, however, can mean higher income taxes.

For instance, consider a single filer who converts $126,000 from a traditional IRA in 2026. If the conversion is fully taxable, they have no other income and they claim the $16,100 standard deduction, their taxable income would be:

• Roth conversion: $126,000
• Standard deduction: $16,100
• Taxable income: $109,900
• Estimated federal income tax: $18,974

If the person has other income, the additional tax from the conversion could be higher. State income taxes may also apply.

The important point is that converting more money each year can help you finish sooner, but it may also increase your tax bill. Converting smaller amounts may reduce taxes in some years, but it leaves more money in the traditional IRA.

Your actual results will depend on investment returns, future tax rates, withdrawals and how much other income you receive during the conversion period.

Make sure you’re prepared for retirement by using our calculator:

Should You Make a Roth Conversion?

In this example, we assume that you are 63 years old and deciding whether to convert a $700,000 traditional IRA to a Roth IRA. The points below outline the main issues that usually shape this decision.

A common starting point is the timeline for required withdrawals. A 63-year-old in 2026 would have an RMD age of 75, which gives you 12 years before mandatory distributions begin. If you want to remove RMDs or shift this balance into an account that allows qualified tax-free withdrawals, a Roth conversion can meet that goal. After the conversion tax is paid, qualified Roth withdrawals are not subject to federal income tax, and heirs generally receive qualified Roth distributions tax-free under current rules.

Another important factor is your current income. The amount you convert is treated as taxable income, which increases the tax you pay that year. For example, suppose you’re single and have $100,000 in taxable income before making a Roth conversion. Converting $126,000 would bring your taxable income to $226,000. A smaller $70,000 conversion would bring it to $170,000.

How to Calculate the Conversion Tax

You can estimate the additional federal income tax by comparing what you would owe before and after the conversion. Using the 2026 tax brackets for a single filer:

• Without a conversion: Federal income tax on $100,000 of taxable income is about $16,570.
• With a $70,000 conversion: Taxable income rises to $170,000, bringing the total federal tax to about $33,734. That’s an additional $17,164 in taxes.
• With a $126,000 conversion: Taxable income rises to $226,000, bringing the total federal tax to about $47,174. That’s an additional $30,604 in taxes.

The calculation is simply the new tax bill minus the original tax bill. For the $70,000 conversion, that’s $33,734 − $16,570 = $17,164. For the $126,000 conversion, it’s $47,174 − $16,570 = $30,604.

These estimates assume the $100,000 is already taxable income after deductions, the entire conversion is taxable and no additional taxes or credits apply.

Expected retirement income also influences the outcome. If you anticipate higher taxable income later in life, paying the tax now may reduce your long-term tax burden. If you expect to be in a lower bracket later, the conversion may offer less value.

Time horizon matters as well. Roth conversions tend to be more effective when the account has many years to grow after the tax is paid. With fewer years before withdrawals begin, the upfront tax cost may be more difficult to offset. A conversion is also less attractive when your current tax rate is higher than the rate you expect in retirement.

The decision ultimately depends on how your income, retirement plans and long-term projections align. Under the assumptions used in this example, a large Roth conversion at age 63 may offer limited tax benefit. The conversion tax is substantial, and the shorter growth period reduces the potential advantage of tax-free compounding.

Bottom Line

Converting to a Roth IRA earlier gives the money more time to grow before you need to withdraw it. Closer to retirement, the decision depends on the tax you would pay now, the rate you expect to pay later and when you’ll need the savings. Spreading conversions over several years may help manage the tax bill, but a shorter timeline can leave less time for tax-free growth to offset that cost.

“One thing that can severely complicate Roth conversions is if your IRA contains both pretax and after-tax contributions. Unfortunately you don’t get to choose precisely which funds to convert. Instead, the IRS will tax your conversion proportionally, and in aggregate, which can lead to a higher tax bill. Consult a financial planner to find out whether conversions will make financial sense if the pro rata rule applies,” said Tanza Loudenback, CFP®.

Tanza Loudenback, CFP® provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Retirement Planning Tips

• A financial advisor can help you determine whether you have enough saved for retirement and recommend strategies to grow your nest egg. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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.
• If you want to know how much your nest egg could grow over time, SmartAsset’s retirement calculator could help you get an estimate.

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