What to Do With Your RMDs: How Retirees Can Reinvest for Growth and Stability
09/18/2025
Introduction: Can You Still Grow a Roth IRA After Retiring?
Retirees in Florida often face the same dilemma:
- Is it still possible to fund a Roth IRA once I’ve already stopped working?
- If I don’t have earned income, is there a way to keep building tax-free retirement assets?
- Will a Roth conversion benefit me, or will it just create a large tax bill today?
The truth is that while direct Roth contributions usually stop when earned income ends, that doesn’t mean your Roth IRA journey is over. On the contrary, your retirement years may be the best time to strategically move money into a Roth.
The key is understanding Roth conversions and how they fit into retirement income planning, particularly for Florida residents who benefit from the state’s no-income-tax advantage.
This guide will break down why Roth IRAs still matter after retirement, how Roth conversions work, tax considerations unique to Florida retirees, and frequently asked questions that can help you make more informed decisions.
Why a Roth IRA Still Matters After You Retire
Tax-Free Growth and Withdrawals
Unlike a Traditional IRA, where every withdrawal is taxable, a Roth IRA offers completely tax-free growth and tax-free qualified withdrawals. For retirees living off investment income, this can create predictability and peace of mind.
Protection From Future Tax Hikes
Tax laws change, and retirees must plan not just for today but for decades ahead. A Roth IRA is a hedge against future tax increases, providing a pool of tax-free funds to draw from, regardless of what Congress does.
Flexible Income Planning
Because Roth withdrawals don’t count toward taxable income, they help retirees manage their taxable income more strategically. This affects Social Security taxation, Medicare premiums, and eligibility for other benefits.
Estate Planning Advantages
A Roth IRA can also play a powerful role in legacy planning. Beneficiaries can inherit a Roth and take distributions tax-free (subject to the 10-year rule). This ensures more of your wealth passes to your family instead of the IRS.
Why You Can’t Just Contribute After Retirement
Direct contributions to a Roth IRA are only permitted if you have earned income, such as wages, salary, or self-employment income. Most retirees rely on pensions, Social Security, or portfolio withdrawals, none of which qualify as a primary source of income.
Therefore, if you’re retired, the only realistic option for continuing to fund a Roth IRA is through a Roth conversion.
What Is a Roth Conversion?
A Roth conversion is the process of moving money from a Traditional IRA, 401(k), or other pre-tax retirement account into a Roth IRA.
- The amount converted is considered taxable income for the year of conversion.
- Once inside the Roth, future growth and withdrawals are tax-free.
- Roth IRAs have no lifetime required minimum distributions (RMDs), unlike Traditional IRAs.
For retirees in Florida, conversions can be especially powerful because you avoid the extra layer of state income taxes.
Why Florida Retirees Are in a Unique Position
No State Income Tax
In many states, a Roth conversion means paying both federal and state taxes. Florida retirees only face the federal bill.
Large Retirement Accounts Are Common
Florida attracts retirees with substantial Traditional IRAs or 401(k)s, which eventually become subject to RMDs. Conversions help manage account balances before RMDs begin.
Timing Opportunities
Retirees often have a window between retirement and the start of Social Security or RMDs when income is relatively low. This creates prime opportunities for conversions at lower tax rates.
When Does a Roth Conversion Make Sense?
1. Early Retirement Years Before RMDs
If you’re retired but not yet 73, you may have several years with low income before RMDs become applicable. Converting during this window often means paying taxes at lower brackets.
2. After a Market Downturn
Market declines temporarily reduce account values. Converting at a lower valuation means you move more shares into a Roth at a lower tax cost.
3. When Relocating to Florida
Some retirees move to Florida after living in high-tax states. Waiting until Florida residency is established ensures you avoid paying state income taxes on conversions.
4. For Estate Planning Purposes
If you expect your heirs to be in higher tax brackets, converting during your lifetime (when you may be in a lower bracket) can be a meaningful legacy strategy.
Tax Considerations Before Converting
Federal Tax Impact
Conversions add to taxable income. A $75,000 conversion may push you into a higher bracket if not carefully planned.
Medicare Premiums (IRMAA)
Higher income from conversions may trigger surcharges on Medicare Part B and Part D premiums two years after the conversion. Strategic planning around these thresholds is essential.
Social Security Taxation
If you’ve already started Social Security, conversions may increase the portion of your benefits subject to taxation.
Multi-Year Conversions
Instead of converting a large balance all at once, many retirees “ladder” conversions over several years to spread out the tax burden.
Educational Section: Direct Contribution vs Roth Conversion.
| Requires earned income? | Yes | No |
| Subject to income limits? | Yes | No |
| Taxable event? | No (after-tax contributions) | Yes (converted amount is taxable) |
| RMDs? | No | No |
| Common for retirees? | Rare | Very common |
This distinction helps clarify why retirees overwhelmingly rely on conversions instead of contributions.
Example Scenarios
Example 1: The Strategic Window Before RMDs
Mark, age 67, lives in Naples, FL. His income drops since he hasn’t yet started Social Security. By converting $40,000 annually from his Traditional IRA to his Roth between ages 67 and 72, he avoids a future spike in RMDs and keeps more long-term income tax-free.
Example 2: Market Recovery Boost
Linda, 72, has a Traditional IRA worth $900,000. After a market decline, her balance temporarily falls to $800,000. She converts $100,000 during the downturn. Two years later, the value has recovered, and those funds now grow tax-free in her Roth.
Example 3: Legacy-Focused Couple
David and Maria, both 74, have more than enough income from pensions and Social Security. They convert portions of their IRA each year to reduce the taxable burden their children would face inheriting pre-tax accounts.
Common Mistakes to Avoid
- Converting too much in one year, causing higher tax brackets and Medicare surcharges.
- Not planning around Social Security can lead to more taxable benefits.
- Paying taxes from the IRA itself, which reduces the long-term growth potential of the Roth.
- Ignoring the 5-year rule for conversions (explained below).
Frequently Asked Questions About Roth Conversions
1. Is there a maximum amount I can convert each year?
No. There’s no IRS limit on the amount you can convert. However, the practical limit is how much taxable income you’re willing to recognize without jumping into a higher bracket.
2. What if I convert and regret it? Can I undo it?
Before 2018, the IRS allowed “recharacterizations” to reverse a conversion. That rule is gone. Today, conversions are permanent, so careful planning is critical.
3. How does the 5-year rule work with conversions?
Each Roth conversion has its own 5-year clock. You must wait five years before withdrawing converted amounts penalty-free (unless you’re over 59½). Growth on the converted funds, however, is always subject to the regular Roth rules.
4. Can I use RMDs to fund a Roth conversion?
No. Once RMDs begin at age 73, they must be taken first and cannot be converted. Only amounts beyond the RMD can be converted to a Roth.
5. Do Roth conversions affect estate taxes?
Not directly. But by reducing the size of your taxable IRA and shifting funds into a Roth, you may lower the tax burden your heirs face when inheriting.
6. How do Roth conversions impact Medicare premiums?
Conversions increase your modified adjusted gross income (MAGI). If MAGI exceeds certain thresholds, you’ll pay higher Medicare premiums two years later. This is one of the most overlooked costs of conversion.
7. If I move to Florida, should I wait to convert until then?
Yes, in many cases. Waiting until you are a Florida resident means you’ll avoid state income taxes that could apply if you convert while still living in a high-tax state.
Conclusion: Florida Retirees Can Still Build Roth Wealth
Just because you’re retired doesn’t mean your Roth opportunities are behind you. In fact, for many Florida retirees, the Roth conversion is one of the smartest financial moves available.
It provides:
- Tax-free income in the future.
- Flexibility in managing Social Security and Medicare costs.
- Reduced RMD pressure.
- More efficient legacy planning for heirs.
The key is strategy—converting in the right years, in the right amounts, and with full awareness of the tax impact. For retirees in Florida, the absence of state income tax makes these strategies even more appealing.
👉 If you’re considering a Roth conversion, working with a fiduciary advisor who understands both federal rules and the unique Florida retirement landscape can make the difference between a good plan and a great one.
Alonso Rodriguez Segarra – CERTIFIED FINANCIAL PLANNER (CFP®)
Which provides hourly, fee-only, and fiduciary financial planning services. He has over 27 years of experience in the financial world and has been named among the Top 100 Financial Advisors in the US by Investopedia and by etf.com
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Note: The comments given in this guide are for educational purposes only. Before making a financial decision, consult your financial advisor or conduct appropriate research. Remember that historical results are not a guarantee of future returns. In the comments provided, this guide does not consider tax impacts. Always consult your particular case with a specialist. We are not your financial advisor, so remember that each case differs.
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All rights to this guide are reserved, and the occasional mention of third-party brand names is made solely for educational and reference purposes, without any interest in financial gain. This information is for educational purposes only and does not represent an offer of products or services.
