Why Roth Conversion Deserves a Closer Look
A Roth conversion isn’t for everyone — but for the right person, at the right time, it can be the most impactful financial decision you make in retirement.
The key is knowing:
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- Will it deliver a measurable financial benefit?
- Will it reduce risks you don’t want to live with?
- Can you implement strategies to significantly reduce the tax cost of converting?
The 8 Retirement Taxes That Can Drain Your Nest Egg
These aren’t just “taxes” — they’re wealth leaks that can silently erode your lifestyle.
1. Federal Income Tax - The 'Tax Tornado'
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Traditional IRA: Every withdrawal is taxed as ordinary income, often at your highest rate. As your account grows, Required Minimum Distributions (RMDs) force you to take out more each year — creating a tax spiral that can quickly eat into your nest egg.
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Roth IRA: Withdrawals are 100% federal income tax–free for life.
2. State Income Tax - Why Your Retirement ZIP Code Matters
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Traditional IRA: Withdrawals may be subject to state income tax depending on where you live.
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Roth IRA: Withdrawals are immune from state income tax in every state.
3. Social Security Taxation — The “Double Tax” Trap
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Traditional IRA: Withdrawals can trigger permanent taxation of up to 85% of your Social Security benefits — meaning you’re taxed on your benefits AND your IRA withdrawals.
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Roth IRA: Withdrawals never trigger Social Security benefit taxation.
4. Medicare IRMAA Penalties — Paying Up to 4× More
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Traditional IRA: Withdrawals can push your income above IRMAA thresholds, increasing your Medicare premiums by as much as four times — and these surcharges typically rise 7% per year.
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Roth IRA: Withdrawals do not affect IRMAA calculations, keeping premiums lower.
5. Fee & Commission Tax — Paying on Money You Don’t Own
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Traditional IRA: You pay investment fees and commissions on your entire balance — even the portion that will eventually go to the IRS as taxes.
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Roth IRA: You pay fees and commissions only on money you truly own.
6. Widow’s Penalty (Income Tax) — Higher Rates for the Survivor
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Traditional IRA: When one spouse passes away, the survivor often pays taxes at the higher “single” rate — even if income stays about the same — reducing lifestyle and increasing lifetime taxes.
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Roth IRA: Withdrawals do not increase taxable income, avoiding this penalty.
7. Widow’s Penalty (Medicare) — Double the Surcharge Risk
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Traditional IRA: IRMAA thresholds are cut in half for surviving spouses, making it easier to trigger costly Medicare surcharges.
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Roth IRA: Withdrawals never impact IRMAA thresholds, even for surviving spouses.
8. Legacy Taxes — Passing on a Tax Burden
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Traditional IRA: Beneficiaries must pay ordinary income tax on inherited IRA balances within 10 years, often on top of their own high earnings.
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Roth IRA: Beneficiaries receive the account tax-free and can grow it for up to 10 more years without paying income tax.
How Velomon Reduces Your Roth Conversion Tax
Our “Reduce & Recover” Method.
We don’t just calculate your conversion tax — we actively help reduce it:
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- Reduce: Our proprietary IRA-LLC strategy can cut your conversion tax bill by 35–40%.
- Recover: Our recovery strategy claws back an additional 10–50% of that already reduced tax.
Know the Math. Decide with Confidence.
We calculate and compare:
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- One-time cost of converting now.
- Lifetime cost of not converting, factoring in all 8 retirement taxes.
One number will be larger — and that will tell you if converting is worth it.
Is This Worth Exploring?
Ask Yourself These Five Questions:
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- Do I know my one-time tax cost of converting?
- Do I know strategies to minimize that tax?
- Do I know my lifetime tax cost of not converting?
- Have I factored in the impact of all 8 retirement taxes?
- Am I okay with the tax penalties my spouse and children might face after I’m gone?