Written by 
Edited by 
Edited by 
Building some savings in a Roth account when you already have a significant balance in a traditional 401(k) at age 55 can make sense. For one thing, withdrawals from Roth accounts, unlike traditional 401(k) withdrawals, are generally tax-free in retirement. Roth accounts are also exempt from required minimum distribution (RMD) rules. Plus, Roth withdrawals won’t affect taxation of Social Security benefits or Medicare premiums.
That said, the shift may have tax implications. If you stop making traditional 401(k) contributions, however, you’ll lose current tax deductions. And, if you expect to be in a lower tax bracket after retiring, sticking with a traditional 401(k) exclusively may make more sense. Also consider whether income-based limits on Roth contributions will apply in your case. Your planned age of retirement is another key factor.
If you’re unsure which account to contribute to, a financial advisor can help you decide. They can run financial models of different scenarios, so you can see which retirement savings route may make more sense for you.
Roth IRA vs. 401(k)
It may make sense for a 55-year-old with a sizable traditional 401(k) account to pivot to making Roth contributions. However, that is not always the case.
Weighing the Pros and Cons of Roth IRAs
A big part of deciding whether to contribute to a Roth account comes down to assessing the benefits and drawbacks of a Roth IRA.
Roth benefits include:
- No income taxes on eligible withdrawals.
- Tax-free investment growth.
- Freedom from RMDs.
- Lower taxable future income, which can reduce chances of Social Security payments being taxed, among other benefits.
Roth IRAs also have some disadvantages, including:
- No tax deductions from current income for contributions.
- Higher current taxable income, which can reduce eligibility for income-based tax credits.
- Roth IRA income caps restrict Roth IRA contributions.
- Smaller contribution limits than 401(k)s, and no matching.
Other Considerations in the Decision
A key element in this balancing act is whether you expect to be in a lower tax bracket after retirement. If so, it may make less sense to contribute to a Roth now. Making contributions to a pre-tax account, such as a traditional 401(k), instead will save money now. It may also, assuming the retiree is in a lower tax bracket, reduce overall tax liability.
Forecasting future tax liabilities requires making educated guesses based on assumptions about changes in tax brackets and income. If the assumptions are inaccurate, the educated guesses may be wrong as well. One way to hedge is to take a hybrid approach, contributing to both traditional 401(k) and Roth accounts. Having some funds in both types of accounts can give a you helpful flexibility in future tax planning. You can also consult a financial advisor, who can help you make projections for various retirement scenarios, which can help you weigh your options.
Having a $1.2-million 401(k) at age 55 suggests that generating sufficient income from that source for a comfortable retirement won’t be a major issue, assuming you don’t plan to retire early. If you do plan to retire early, bear in mind the five-year rule. This stipulates that you generally have to wait five years after establishing your Roth account before you can withdraw earnings tax-free.
How a Financial Advisor Can Help
The core question in any Roth conversion decision is whether your tax rate today is lower than it will likely be in retirement. A financial advisor can project your expected retirement income across all sources to estimate what tax bracket you’ll realistically land in. If that projected rate is higher than your current rate, shifting contributions to a Roth will lock in today’s lower rate on every dollar you convert.
RMDs are one of the most compelling reasons to pivot toward Roth contributions before retirement. Traditional 401(k) and IRA balances are subject to mandatory withdrawals starting at age 73, and those withdrawals are fully taxable regardless of whether you need the income. A financial advisor can calculate your projected RMD obligations based on your current account balances and growth assumptions. Based on that, they can determine whether shifting to Roth contributions now meaningfully reduces that future tax burden.
Medicare premium surcharges add another dimension to the decision. Higher taxable income in retirement triggers IRMAA adjustments that increase Part B and Part D premiums significantly, and RMDs from large traditional accounts are a common cause. A financial advisor can model whether reducing your traditional account balance through Roth contributions will keep your retirement income below those thresholds. Over the long run, this shift can offer several hundred dollars per month in Medicare cost savings.
The pivot to Roth contributions makes the most financial sense during years when your income is temporarily lower than usual. A job change, a sabbatical, a business loss or the gap years between retirement and when you claim Social Security all represent windows where converting at a lower rate is possible. A financial advisor can identify those windows in advance and help you maximize Roth contributions during those years when doing so costs the least.
Estate planning is a factor that often tips the decision toward Roth contributions for higher-net-worth individuals. Roth accounts pass to heirs without immediate tax obligations. In contrast, traditional accounts inherited after your death require beneficiaries to take taxable distributions within 10 years. A financial advisor can assess whether your primary motivation for pivoting to Roth is managing your own retirement income or leaving a more tax-efficient inheritance. The optimal strategy can differ depending on that answer.
The decision between these accounts is not necessarily all or nothing either. A financial advisor can build a split contribution strategy that directs a portion of savings to traditional accounts and a portion to Roth accounts. This approach can allow you to diversify your future tax exposure rather than betting entirely on one outcome. That can be particularly useful when future tax rates are genuinely uncertain, as it hedges against being wrong in either direction while still providing Roth exposure going forward.
Bottom Line
Pivoting to Roth IRA contributions can make sense for a 55-year-old who anticipates being in a lower bracket after retirement. Roth funds grow tax-free, are free from RMD rules and generally can be withdrawn tax-free in retirement. However, given the difficulty of forecasting future tax liabilities, it may make sense to contribute to both traditional 401(k) and Roth accounts. This will give a retiree access to both current tax deductions and untaxed withdrawals in retirement.
More Retirement Tips
- Choosing between a traditional Roth or a Roth 401(k) involves making a number of assumptions and projecting outcomes in different scenarios. A financial advisor can help model those outcomes and improve the quality of this decision. Finding a financial advisor to help with that doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area. You can then interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now. You can also read SmartAsset reviews.
- Curious how much your 401(k) account will be worth in the future, after accounting for your contributions, employer matches and investment growth? Use SmartAsset’s 401(k) calculator. Having this figure in hand is key to determining whether your retirement savings are on track.
- Keeping an emergency fund on hand in case you run into unexpected expenses is essential. This fund should be liquid, meaning an account that isn’t at risk of significant fluctuation like the stock market. However, these accounts are also often at risk of being eroded by inflation. A high-interest savings account can help offset that risk, by allowing you to earn compound interest. Compare savings accounts from these banks.
Photo credit: Grok