10 Roth Conversion Mistakes That Can Derail Retirement

Most advisors treat a Roth IRA conversion as a no-brainer, and most consumers hear the same thing from the internet. Roccy DeFrancesco thinks that's wrong for most people. In this episode he walks through his Top 10 Roth Conversion Mistakes white paper: the ten errors he believes can cost you or your heirs tens or even hundreds of thousands of dollars. The 10 mistakes: Working with a bad advisor. Roccy says most CPAs and planners come up with conversion advice by guessing ("tax-free is better than taxable," "convert to the top of your bracket"), with free online calculators that take a handful of inputs, with homemade spreadsheets, or with industry software he believes isn't accurate. In his view the goal shouldn't be lower taxes, RMDs or IRMAA. It should be one thing: more money because of the conversion, and, secondarily, a better result for your heirs. He believes more than 85% of people who convert get a worse outcome. Converting without a full retirement plan. You can't know whether a conversion works without modeling income, taxes, investments, withdrawals and IRMAA over decades, and stress-testing market crashes and long-term care. Not understanding the lost compounding growth. Roccy calls this the number-one mathematical reason Roth conversions don't work. Every dollar pulled from a brokerage account or the IRA to pay the conversion tax stops compounding for the rest of your life and your spouse's life, and he says that loss usually outweighs the future tax savings. Ignoring IRMAA, the Medicare surcharge. Medicare premiums rise when modified adjusted gross income passes certain thresholds, based on your income from two years earlier. A conversion adds income instantly and can trigger it, often without warning, as a smaller Social Security check. Converting at the wrong time or with the wrong strategy. Converting during peak earning years stacks income on income. Converting too late leaves too few years for tax-free growth. Roccy says "fill up the 22% bracket" almost never works, and that tax equalization sometimes does but can still leave you with less. Misreading the RMD reality. Roccy argues required minimum distributions aren't evil. Large RMDs usually mean you got years of tax-deferred compounding, and you only pay tax on the withdrawal; the rest can be reinvested. Overestimating future tax rates. Most people's income drops in retirement. On his chart, the top rate has moved like a yo-yo for 70 years, but the effective rate for the average American has barely changed. He sees "taxes are going up" as a fear-based sales tactic. He also stresses that software must inflate tax brackets each year: on his slide, the 22% bracket starts around $101,000 of income in 2026 and around $191,000 by 2050. Failing to run long-term projections. A one-year snapshot, or a flat 5% return for 30 years, isn't how markets, expenses or life events behave. Ignoring the legacy impact. Under the 10-year inherited IRA rule, your heirs' results depend on their income (model $75,000 up to $1 million) and on whether they withdraw early or wait until year 10. Roccy says most software doesn't model the heirs' side at all. Converting without a qualified guide. Roccy admits this one is self-serving. His point: bad advice on a multi-year decision with dozens of variables can add up to significant damage. Red flags Roccy says to watch for: an advisor who focuses only on tax savings, can't explain or validate their numbers, uses a spreadsheet or generic software, never compares your total wealth with and without the conversion, or pitches a bonus annuity to pay the conversion tax (covered in episode 9). What a real process looks like, per Roccy: decide whether it's worth running the numbers, gather your full information, set your risk baseline, run the conversion scenarios, design recommendations only if they make sense, then review at least once a year. Resources mentioned: Download the free Top 10 Roth Conversion Mistakes white paper, the written version of this episode. Read Deconstructing Roth IRA Conversions: Myth vs. Reality free online, the book Roccy co-wrote with his daughter. It's also available in print on Amazon. Find a Roth Sherpa at rothsherpa.com, or contact Roccy at [email protected] or 269-216-9978. Disclosure: Roth Sherpa is Roccy's own marketing platform, and the Certified Roth Conversion Specialist designation and the OnPoint software mentioned here were created by Roccy and his team. He co-wrote the book with his daughter and earns royalties on print sales. He also founded an insurance wholesale company that sells fixed products, including annuities. The 85% figure, the tax-rate chart and his views on CPAs, online calculators, industry software and other advisors are his own opinions and analysis. Nothing here is legal, tax or investment advice. Questions, or a topic you want covered? Reach out.