When saving for retirement, you may have been putting money away in a 401(k) or similar employer-sponsored plan. The challenge you’ll face in retirement is that when you need to withdraw from that account in retirement, the money will be subject to tax. So your retirement income might be lower than you had anticipated.
To avoid this heavy-tax situation, consider converting some of this pretax savings into a Roth 401(k) or Roth IRA before you retire. You’ll owe income taxes on the amount you convert, but future earnings won’t be taxed when you withdraw them, which means that they’ll be tax-free rather than tax-deferred.
You can also begin planning for the possibility of doing a series of yearly Roth conversions after retirement. With a reduced income in retirement, these may have less of a tax impact than if you made the conversions during your higher-income, working years.
Roth conversions are complicated, though, so discuss potential tax implications with your tax adviser before transferring assets.