Roth Conversions in Your 60s: The Bridge Years Strategy Too Many Retirees Miss

Saving in a traditional IRA or 401(k) for retirement is a great way to grow a nest egg while reducing your tax burden from year to year. But there's a catch.

Once you start taking IRA or 401(k) plan withdrawals, you'll be taxed on those distributions. Starting at age 73 (or 75, depending on your year of birth), you'll also have to start taking required minimum distributions, or RMDs, from your savings or else face a potentially huge penalty each year.

Image source: Getty Images.

A Roth conversion could be your ticket to avoiding RMDs. But it's important to plan for one carefully. One thing you may want to do is use your 60s to optimize your conversion strategy.

Why your 60s are a pivotal planning decade

Many people find that their income drops during their 60s. At that point, you may be working a less stressful job with lower pay, or no job at all. You may be living mostly on Social Security, or you may be working part-time before having filed for benefits.

That period of reduced income provides an opportunity to do Roth conversions. It's a good idea to take advantage.

Roth conversions are a taxable event. Each year you move money from a traditional retirement account into a Roth, the IRS taxes you on that sum.

If you spread out Roth conversions throughout your 60s, you can minimize the amount of money you're moving over in a single year. That could, in turn, help you avoid a whopping tax bill and other unwanted consequences.

Things to be on the lookout for

Of course, Roth conversions during your 60s still need to be done carefully. A big mistake you don't want to make is converting too much in a single year, which could push you into a higher tax bracket.

But that's not all. If your income rises substantially one year due to a large Roth conversion, you could face taxes on your Social Security benefits if you're already collecting them. You could also end up having to pay more for Medicare.

Medicare charges enrollees a standard monthly premium for Part B. But higher earners can face surcharges known as income-related monthly adjustment amounts, or IRMAAs, that drive up the cost of Part B as well as Part D.

IRMAAs are based on your income from two years prior. So if you start doing Roth conversions at age 63 and plan to enroll in Medicare at 65, you'll need to be careful with the sum you move over.

Ultimately, your 60s may be a prime opportunity to convert your traditional retirement savings to a Roth so you can avoid RMDs. Planning ahead could set the stage for a smooth conversion period without unwanted repercussions popping up.

The Motley Fool has a disclosure policy.