What does an ancient Japanese ceramic repair technique have to do with your retirement plan? At first glance, nothing. But if we delve into the concept of Kintsugi, we discover the perfect metaphor for understanding Roth Conversions.

Kintsugi is the art of repairing broken objects by joining the pieces with gold. The result is not just a functional object, but one that is more beautiful and valuable than the original. In the world of finance, a Roth conversion is similar: we voluntarily “break” the structure of a tax-deferred account to rebuild it with “gold” (taxes paid today), creating a much more solid wealth for the future.

The Silent Partner

Throughout our lives, we’ve been told to save in a 401(k) because we save on taxes today. And it’s true, it’s a wonderful thing. But we forgot one detail: Uncle Sam is a silent partner who isn’t going anywhere. That money you see in your account isn’t all yours; a portion has a name and a surname: IRS.

The problem is that if we leave that money there forever, the government will eventually force us to take it out. This is called the RMD (Required Minimum Distribution). Depending on your birth year, the law mandates you to withdraw money at certain ages:

• If you were born before 1949: You should already be taking it out.
• If you were born between 1951 and 1959: It’s at age 73.
• And if you were born after 1959: It’s at age 75.

1. What is a Roth Conversion?

A Roth Conversion consists of transferring assets from that deferred account to a Roth IRA. In the process, you declare that movement as income and pay the corresponding taxes today. In exchange, that money will never pay taxes again—neither on gains nor on withdrawals.

2. The RMD Factor: When the IRS loses patience

The risk: If your accounts have grown significantly, these mandatory distributions can push you into a much higher tax bracket than you had during your peak professional years.

3. Why pay taxes today voluntarily?

It seems counterintuitive to pay taxes when no one is asking for them, but there are three powerful reasons:

• Historically Low Rates: If we look at the history of taxes in the U.S., we are in one of the periods with the lowest rates of the modern era (37% top rate today versus 70% or 90% in the last century).
• The Widowhood “Tax Bump”: When one member of a couple passes away, the survivor goes from filing as “Married Filing Jointly” to “Single.” Deductions are cut in half, but the assets remain large, which usually triggers a higher tax burden.
• Heir Protection (The 10-Year Rule): Under current law, beneficiaries who inherit a traditional IRA must empty the account within 10 years. If they inherit a large account, that could drive them into the highest tax bracket, “burning” a large part of their inheritance in taxes.

4. The Strategy: Flattening the tax curve

The goal of a financial planner is not just to invest, but to optimize. Instead of having a massive tax “peak” when RMDs begin, the strategy seeks to:

• Perform gradual conversions during early retirement years (when your income is low).
• Use sophisticated software to convert the exact amount that keeps you in an efficient tax bracket (for example, the 22% or 24% bracket).
• Result: A flat and predictable tax burden, with assets growing tax-free.

5. When does a Roth Conversion NOT make sense?

It is not a magic recipe for everyone. It is not advisable if:

• You need the money soon: If you are going to withdraw the funds for current expenses in less than 5 years.
• Short life expectancy: Conversions need time and performance to be effective.
• Health Subsidies (ACA): If you are between 62 and 65 and receive subsidies for your health insurance, increasing your income through a conversion could cause you to lose those benefits.
• Change in risk profile: If you go from investing aggressively in your IRA to being extremely conservative in your Roth, the benefit of tax-free growth is diluted.

Conclusion

A Roth conversion is your opportunity to be the “boss” of your own taxes. Like the Kintsugi master, you decide when and how to apply the gold to your financial scars to ensure that your legacy and your retirement are more valuable than you ever imagined.

If you would like to analyze your specific case, determine how much “gold mixture” your plan needs, and how to avoid costly mistakes, we invite you to schedule a complimentary consultation on our website.