Roth Conversions for Large IRAs: More Than Bracket Management
Roth conversions are often presented as a tax play—fill up today’s lower tax brackets to reduce future forced income from an IRA (RMD’s) and overall lifetime income taxes. For smaller accounts, tax bracket management may be a sufficient goal.
But when IRA balances grow very large—and the estate itself may exceed federal exemption thresholds—the Roth conversation changes.
In these cases, it’s not just about income smoothing. It’s about strategic repositioning. Done well, Roth conversions can reduce estate taxes, capture market recovery more efficiently, and create greater long-term control—both during life and after.
Why Timing Matters for Large IRAs
For high-net-worth households, bracket management is rarely the most important factor in Roth conversion decisions. If the estate is likely to exceed the federal exemption ($15M per person in 2026, $30M for couples), the conversation shifts to estate tax savings.
When you pay income tax on a Roth conversion today, those tax dollars reduce your taxable estate. For example:
A $3 million conversion taxed at 37% results in $1.11 million in income tax paid now—but that $1.11 million is no longer subject to 40% estate tax later. The spread of 3% while not necessarily motivating is just one reason.
The remaining $1.89 million grows tax-free, both during life and for up to 10 years after death under the SECURE Act. A beneficiary that receives a tax-free account has such a burden removed.
That’s not just a tax deferral—it’s an estate planning opportunity.
Convert When Markets Are Down
One of the most underutilized strategies with Roth conversions is market-value timing. Converting when asset values are temporarily depressed allows you to pay tax on a lower base and capture future growth in the Roth, tax-free.
This can be particularly powerful for portfolios concentrated in equities or tech, where recovery potential is significant. It’s not always comfortable, but history has shown that market downturns can be some of the most efficient conversion windows. Having a discussion with your tax professional and investment advisor and preparing for a conversion while waiting for a market downturn can allow you to benefit from a declining market that then improves.
A Hedge Against Rising Tax Rates
With the 2017 tax law scheduled to sunset after 2025 and national debt continuing to climb, the potential for higher future income tax rates isn’t far fetched. For families who can afford to accelerate income, today’s tax brackets may represent a limited-time opportunity.
Partial Roth conversions can serve as a form of tax-rate hedge—paying at today’s known rates rather than risking higher rates later for both individuals and their heirs.
Charitable Planning: Don’t Convert It All
For many families, a full Roth conversion isn’t the right answer. Keeping some traditional IRA funds intact allows for Qualified Charitable Distributions (QCDs)—up to $105,000 per year per person, indexed—which can satisfy RMDs without increasing taxable income.
Additionally, naming charities as IRA beneficiaries can eliminate both income and estate tax on those assets. This can be a tax-efficient way to meet philanthropic goals with your IRA while preserving Roth assets for heirs.
It is the mixture of these planning points - conversions, market decline transfers, charitable timing that make modeling these actions potentially so valuable. You need to see the possibilities in a comprehensive plan to determine their possible benefit.
Control Through Trusts
Large IRAs often come with added complexity around inheritance. Naming a trust as the beneficiary can provide control, but structure matters. A properly drafted see-through trust can meet SECURE Act rules while preserving access and protection. Coordination between legal, tax, and other financial professionals is critical. Here, the use of a very good, experienced professional to properly draft the trust is crucial to obtaining your desired outcome.
A More Strategic Roth Conversation
For large IRA balances, Roth conversions aren’t just about minimizing taxes in retirement. They’re a tool to reduce estate exposure, enhance charitable planning, and increase long-term flexibility across two generations.
Everyone’s financial picture is unique. If you’re evaluating Roth conversions and want to understand how they impact your tax, estate, and philanthropic goals, Brickley Wealth Management offers in-house investment and CPA expertise to help you think it through. We can run the math and assist you in making the decision.