A 65-year-old woman with a $1.2 million IRA is contemplating whether it is advantageous to convert her traditional IRA to a Roth IRA. Converting the entire balance at once would result in a substantial tax bill, so she is exploring the option of partial Roth conversions tailored to her situation. By spreading the conversion over multiple years, she can minimize the tax burden and potentially benefit from tax-free withdrawals and a tax-free inheritance in the future. Roth conversions involve shifting funds from a pre-tax traditional IRA to a Roth IRA that uses after-tax dollars. Withdrawals from a Roth IRA can be made tax-free, and Roth accounts are not subject to required minimum distributions (RMDs). However, it's important to note that the money converted becomes ordinary income in the year of conversion, which can trigger a higher tax rate. By spreading the conversion over several years, the woman can avoid jumping into a higher tax bracket. For example, converting the full $1.2 million balance in one year could result in a one-time federal income tax bill of over $398,000. However, spreading the conversion over 10 years at $120,000 per year would put her in the 22% tax bracket, resulting in an annual federal tax payment of approximately $18,430. Other factors to consider include the impact on taxes on Social Security benefits, potential loss of tax credits, and the need to convert more in later years to deplete the account. It is crucial for the woman to evaluate her financial plan, income streams, tax outlook, healthcare costs, and estate plan before making a decision on a Roth conversion. While a Roth conversion can be done at any age, converting a large IRA balance all at once typically leads to a significant tax bill. Partial Roth conversions tailored to the individual's circumstances can help reduce the tax burden. Additionally, it is essential to consider potential changes to tax rates in the future. [b865c621]