Strategic IRA Rollovers and Roth Conversions for Tax-Efficient Retirement Planning

For high-income earners and retirees seeking long-term tax efficiency, the strategic use of IRA rollovers and Roth conversions can significantly enhance wealth preservation. These techniques shift retirement funds into more flexible, growth-oriented accounts while optimizing tax treatment—both now and in the future.

Understanding the Difference: Rollover vs. Conversion

What Is an IRA Rollover?

An IRA rollover allows you to move funds from one retirement account (like a 401(k)) into a traditional IRA without triggering a taxable event. This is typically done to consolidate accounts or gain access to a broader array of investment options.

What Is a Roth Conversion?
A Roth conversion involves transferring funds from a traditional IRA or 401(k) into a Roth IRA. This triggers ordinary income tax on the converted amount but allows future growth and withdrawals to be tax-free.

Why Roth Conversions Matter for High-Income Earners
Pay Taxes Now, Reap Tax-Free Growth Later

If you’re in a relatively low tax bracket today—or expect higher tax rates in the future—converting now may reduce your lifetime tax burden. Once in the Roth, your investments grow tax-free and are not subject to required minimum distributions (RMDs).

Estate Planning Advantages
Roth IRAs pass to heirs income-tax free (subject to withdrawal rules), making them an ideal tool for multigenerational wealth transfer. Unlike traditional IRAs, Roths don’t have lifetime RMDs, allowing assets to grow longer.

Tactical Strategies to Optimize Roth Conversions
Use Tax Bracket “Fill-Up” Strategies

Convert just enough each year to stay within your current tax bracket. For instance, if you’re in the 24% bracket, convert up to the top of that bracket without tipping into the next.

Spread Conversions Over Several Years
Avoid a one-time tax spike by phasing in conversions. This method offers flexibility and more predictable tax exposure.

Convert During Market Declines
Lower account values mean less tax due at the time of conversion. Future recovery happens tax-free within the Roth IRA.

Don’t Overlook the Backdoor Roth Strategy
For Those Over the Income Limit

High earners often exceed the income limits for direct Roth contributions. The backdoor Roth—a two-step process using a non-deductible traditional IRA followed by a conversion—lets you legally fund a Roth despite the income cap.

The Mega Backdoor Roth for 401(k) Plans
If your 401(k) allows after-tax contributions and in-plan conversions, you may be eligible for the mega backdoor Roth, enabling up to $66,000 in Roth contributions annually (as of 2023 limits).

Final Thoughts for Advisors
The Opportunity for DWS Advisors

As a DWS financial advisor, consider initiating client conversations around Roth conversion strategies during annual reviews or tax planning discussions. These techniques are not one-size-fits-all but can provide substantial tax diversification and legacy benefits when properly timed and executed.

Help your clients make smarter retirement tax decisions. Use this article to guide discussions about Roth conversions, rollovers, and advanced strategies. For support customizing these approaches, connect with the DWS Planning Desk or request client-ready resources tailored to your book of business.