8 Reasons to Avoid a Roth Conversion

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Advisors focused on clients preparing for the transition to retirement often cite Roth conversions as one of the most powerful tools to maximize lifetime wealth accumulation and minimize the overall tax burden.

In fact, according to retirement experts Ed Slott and Jeff Levine, Roth conversions are such a powerful technique that they can mistakenly lead advisors to assume clients should always enact the strategy. In reality, there are situations in which a conversion might not make sense.

As explored in the latest episodes of Slott and Levine’s The Great Retirement Debate podcast, sometimes the reasons to avoid conversion are purely financial, while in other situations, behavioral considerations change the Roth calculus.

Slott, a nationally recognized IRA expert and founder of Ed Slott and Co., and Levine, the chief planning officer of Buckingham Strategic Wealth, just finished their first 20-episode podcast season. To mark the occasion, they closed Season One with a two-part Roth conversion extravaganza.

As the pair freely admitted during their latest “debate,” both Slott and Levine are known as big fans of the Roth IRA, and they are commonly cited by financial media discussing the critical importance of conversions and mindful tax diversification to successful retirement outcomes.

However, like any financial strategy, there are both potential benefits and drawbacks to Roth conversions, so it’s important for clients and advisors to carefully consider the decision that’s best in a given situation.

“Nothing is all black and white,” Slott says. “Some things are gray. So, even with my favoritism for Roth conversions, there are reasons to forgo one.”

See the slideshow for a summary of eight key reasons to not make a Roth conversion. While some of them are common knowledge, more than a few may surprise the dedicated Roth conversion advocate.

(Pictured: Jeff Levine and Ed Slott)

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