Should You Use Roth Conversions With a $10 Million Portfolio?
If you have a $10 million portfolio, you probably don't need another article telling you to save more money. You've already done that.
At this point, the questions are different. How much can you spend in retirement? How much will you pay in taxes? How much should you leave to your children? And perhaps the biggest question of all:
Should you use Roth conversions with a $10 million portfolio?
The answer is: maybe.
I know, not the satisfying one-word answer you were hoping for.
A Roth conversion can be a powerful tax-planning strategy, but having $10 million doesn't automatically mean you should convert a large portion of your traditional IRA to a Roth IRA. In fact, with a portfolio this large, the decision can get more complicated, not less.
I'm Charlie Horonzy, CFP®, CPA, and I specialize in tax-efficient retirement planning. When I look at a $10 million portfolio, I don't just look at the investment return. I want to know what happens after taxes.
What Is a Roth Conversion?
A Roth conversion is when you move money from a traditional IRA or other eligible tax-deferred retirement account into a Roth IRA. You generally pay income tax on the amount converted, assuming the money hasn't already been taxed. Once the money is in the Roth IRA, qualified withdrawals can generally be tax-free.
That's the basic idea. Here's where things get interesting.
If you have $10 million, you may have several million dollars sitting in traditional retirement accounts. That money hasn't necessarily been taxed yet. Eventually, taxes may become due when you withdraw it.
So the question isn't simply "should I convert my IRA to a Roth?" The better question is "would paying taxes on some of that money today potentially reduce my lifetime tax bill?"
That's a much more interesting question.
Why Roth Conversions Can Make Sense With $10 Million
One reason Roth conversions can be attractive for wealthy retirees is that you may have a significant amount of money sitting in tax-deferred accounts.
Let's say you have:
$5 million in traditional IRAs
$3 million in taxable investments
$2 million in Roth accounts
That's a $10 million portfolio. But it isn't really one $10 million bucket, it's three jars with three very different sets of rules stamped on the lid.
The $5 million traditional IRA may eventually create taxable income when you take distributions. Your taxable investments may generate dividends and capital gains. Your Roth assets can potentially provide tax-free income when withdrawals are qualified.
That means asset location and withdrawal strategy matter. A Roth conversion can be one way to intentionally move money from the tax-deferred bucket into the tax-free bucket.
But Should You Convert a Huge Amount at Once?
This is where I'd slow down.
If you convert $1 million from a traditional IRA to a Roth IRA, you don't get to move that $1 million without consequences. The conversion can create a large taxable event. That's where the phrase "tax-efficient" becomes important.
The goal isn't necessarily to avoid taxes. You may not be able to. The goal is to avoid paying more taxes than necessary over your lifetime.
Sometimes that means paying more taxes today. Sometimes it means waiting. Sometimes it means doing a partial Roth conversion every year. And sometimes it means not doing a Roth conversion at all.
The Best Time for a Roth Conversion May Be Before RMDs
One of the biggest planning opportunities can show up during the years between retirement and the point when required minimum distributions become a factor. Think of it as a tax-planning intermission, the IRS isn't knocking yet, but it will be.
You may have retired. Your earned income may have dropped substantially. But you may not yet be taking large required distributions from retirement accounts. That gap can create a window where a Roth conversion makes sense.
For example, imagine someone retires at 62 with $10 million. They have substantial assets, but their annual taxable income has dropped because they're no longer receiving a large salary.
Instead of waiting until later in retirement and potentially being forced into larger taxable distributions, they could evaluate whether converting a portion of their traditional IRA each year makes sense.
But again, the right amount matters. The goal isn't to convert as much as possible.
The goal is to determine how much conversion makes sense given the rest of the tax picture.
What About the $10 Million Portfolio That's Mostly Taxable?
This is an important distinction.
If most of your $10 million is already in taxable brokerage accounts, a Roth conversion may matter less than it would for someone with several million dollars in traditional IRAs.
For example:
Portfolio A
$7 million traditional IRA
$2 million taxable
$1 million Roth
Portfolio B
$2 million traditional IRA
$7 million taxable
$1 million Roth
Both people have $10 million. But their tax situations are very different. This is why I don't like making financial decisions based solely on net worth. The composition of your wealth matters just as much as the total.
What If Your Goal Is Leaving Money to Your Children?
This can change the Roth conversion conversation entirely.
If you don't expect to spend all of your retirement assets, you may be thinking about what happens to the money after you're gone. There can be significant differences between leaving heirs traditional retirement assets and Roth assets.
A Roth IRA can potentially provide heirs with an asset that carries different tax characteristics than an inherited traditional IRA. That doesn't automatically mean you should convert everything. But if your retirement plan already shows you're unlikely to need all of your traditional retirement assets for your own spending, Roth conversion planning deserves a closer look.
Your estate plan, expected spending, charitable goals, tax situation, and family circumstances all factor in.
Don't Forget About Your Other Taxable Income
Here's another reason I don't recommend looking at Roth conversions in isolation. Your tax return isn't just your IRA.
You may also have:
Social Security
Pension income
Interest
Dividends
Capital gains
Real estate income
Business income
Other retirement distributions
A Roth conversion gets layered on top of all of that. Converting $300,000 may look reasonable when you view it by itself. But what happens when you add $300,000 of conversion income on top of everything else?
That's the calculation that actually matters.
So, Should You Use Roth Conversions With a $10 Million Portfolio?
Potentially. But don't assume more conversion is automatically better.
With a $10 million portfolio, Roth conversion planning should be part of a broader retirement tax strategy. Before deciding how much to convert, consider:
How much do you have in traditional retirement accounts?
How much do you actually expect to spend each year?
What other taxable income will you have?
When will required minimum distributions become relevant?
Are you planning to leave assets to your children or other heirs?
Do you expect your tax situation to change in the future?
Would paying the conversion tax today create another financial problem?
How does the conversion fit with charitable giving and other tax strategies?
What happens if you live much longer than expected?
What does your lifetime tax projection actually show?
Those are much better questions than simply asking "should I do a Roth conversion?"
The Bottom Line
A $10 million portfolio gives you options. But options aren't the same thing as a plan, and the IRS doesn't hand out style points for having a lot of money.
Roth conversions can be an excellent tool for managing future taxes, particularly when you have substantial tax-deferred assets and years of retirement ahead of you.
But a Roth conversion isn't automatically beneficial just because you're wealthy. You have to look at the numbers, and you have to look at them over your lifetime, not just at this year's tax bill.
Sometimes paying more taxes today saves money later. Sometimes it doesn't. That's why I believe tax planning should be integrated with retirement planning rather than treated as an afterthought.
You've worked hard to build your wealth. Now the question is how to use it efficiently, so you can focus on your finances and, ultimately, your life.
I'm Charlie Horonzy, CFP®, CPA. I help pre-retirees and retirees develop tax-efficient retirement strategies so they can make informed decisions about their money and focus on living their best lives.
If you have $10 million or more and are wondering whether Roth conversions make sense for you, don't start with the conversion. Start with the plan.
SCHEDULE A TIME
Stay Focused!
This article is for general educational purposes only and is not individualized investment, tax, or financial advice. Tax rules and individual circumstances vary.
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