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Brad Tinnon

Should Your Entire IRA Be Converted to a Tax-Free Roth IRA?

In last week’s blog post I discussed the importance of converting some of your taxable IRA to a tax-free Roth IRA to protect against higher taxes in the future. With that in mind, should you convert your entire IRA to a Roth IRA? I answer this question in today’s article.

There is a strong appeal to moving all of your IRA money to a tax-free Roth IRA. After all, you’ll never have to worry about paying taxes on those investments again. You won’t have to worry about taking out a minimum amount every year when you reach age 72. And you won’t have to worry about more of your Social Security income being taxed as a result.

So, while there are some major benefits to converting your IRA to a Roth IRA, today I want to share 5 reasons why you should not convert your entire IRA.

5 Reasons to Not Convert Your Entire IRA to a Roth IRA


Reason #1: Loss of Tax Deductions

If all your money is in a tax-free Roth IRA, then you won’t be able to take advantage of certain tax deductions that might be available. For example, current IRS rules state that you can make a charitable contribution directly from your IRA completely tax-free if you are at least 72 years old. So, while this withdrawal from your IRA would normally be taxable, the IRS says that it is tax-free.

If you would have converted your entire IRA to a Roth IRA, you would have paid tax on that conversion. So essentially, you would be paying tax on a charitable contribution that could have been tax-free.

Reason #2: Current Tax Rate is Too High

I mentioned in last week’s blog post that even if you are in the 22% or higher tax bracket that you should still consider converting some of your IRA to a Roth IRA. However, this is a hard pill for people to swallow because it requires them to pay taxes in the year the conversion taxes place. It’s true that this could still be beneficial if taxes end up being much higher in the future; however, it’s difficult to pull the trigger on this.

As a general rule, we recommend that people do a Roth Conversion if they are in the 12% or under tax bracket. This is too low of a tax bracket to pass up and it’s unlikely taxes will be lower in the future.

For those who are in higher tax brackets (22% and up), we generally recommend that they wait to move money from an IRA to a Roth IRA. Wait for a year when your income is much lower. Often times this is your first years of retirement before Social Security has kicked in. But if your income is not projected to go lower or if you don’t want to wait until retirement, then consider converting a little bit at a time. At the very least you can get more money into a Roth IRA simply by making contributions (if you’re eligible).

Reason #3: Tax Law Could Change

While Roth IRA’s are currently tax-free to both the owner and the beneficiary, that may not always be the case. It’s hard to imagine a scenario where the Roth IRA would become taxable to the owner because the owner has already paid tax when they contributed to the Roth or did a Roth Conversion. So, if the IRS made the Roth IRA taxable in the future, that would be considered double taxation and that wouldn’t go over very well.

It would be more likely that the IRS would tax the Roth IRA for beneficiaries. Think of it as sort of an estate tax at the death of the owner. While that would also be double taxation, it would be somewhat more palatable.

But none-the-less, anything can happen. It’s possible that a Roth IRA could become taxable in the future to both the owner and / or the beneficiary. If that scenario does play out, then you would have been better off keeping your money in the IRA and letting it grow tax deferred as opposed to paying tax today to convert it to a Roth IRA.

Reason #4: Avoid Estimated Tax Payments

If you have a large gain from a taxable, non-IRA investment account, then this could force you to pay estimated taxes. This would happen if the gain resulted in you owing more in taxes than you normally would. And if you don’t pay estimated tax payments you would face an IRS tax underpayment penalty.

To avoid the penalty you would have to pay estimated taxes every quarter, which can be a burden. To solve that problem, you could simply take a one time withdrawal from your IRA and have the taxes sent in automatically. However, if you had converted your entire IRA to a Roth IRA, you would be forced to pay estimated tax payments.

Reason #5: Diversification

We simply do not know what the future holds. The unexpected could happen making an IRA more valuable than a Roth IRA. At the present, it’s hard to fathom that, but if the COVID-19 crisis has taught us anything, it’s that anything can happen. To protect against an unknown future, your best course of action is to diversify to make sure you have money in both an IRA and a Roth IRA. Better yet, employ the 3-Bucket Strategy that I’ve mentioned in the past to build a hedge around your financial life.


As you can see, converting your entire IRA to a Roth IRA is likely not a wise thing for you to do. As appealing as it sounds on the surface, you’ll be better prepared for the future if you keep some of your money in your IRA.

There’s no way to know exactly how much you should keep in your IRA, but a good starting point would be to equalize the amounts you have in both your IRA and Roth IRA.

Please leave comments below and let me know what you think about this topic. Also, let me know what other reasons you may have for leaving money in your IRA.

Brad Tinnon

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