Traditional IRA Withdrawals and Roth Conversion Strategy

Every dollar withdrawn from a traditional IRA is taxed as ordinary income, making withdrawal timing critical. The years between retirement and age 73 offer a window for strategic Roth conversions at lower tax rates, before RMDs begin and force you into higher brackets.

The tax reality: Every dollar withdrawn from a traditional IRA is taxed as ordinary income. There is no capital gains rate, no special treatment. The full amount hits your tax return in the year you take it.

RMDs begin at 73: You must start taking required minimum distributions by April 1 of the year after you turn 73. The annual amount is based on your prior year-end balance divided by an IRS life expectancy factor that shrinks each year.

The Roth conversion opportunity: Converting some or all to a Roth during low-income years -- particularly the gap between retirement and age 73 -- can dramatically reduce lifetime taxes. You pay tax on the converted amount now, but you choose when and how much each year. The window is most valuable when your taxable income is temporarily low.

The tradeoff: Large traditional IRA balances cannot be converted all at once without a significant tax hit. This is a multi-year strategy that requires careful annual calibration, not a one-time decision.