A Roth Conversion is simply paying taxes now to potentially reduce taxes later. When I think of taxes and retirement accounts I remember the qoute from Rounders "Pay that Man his Money". Taxes are either paid in the year you earn the income, receive the dividend, or take the distribution. Taxes can be deferred to a date in the future like with Individual Retirement Accounts (IRAs), and 401Ks. Or they can be eliminated by saving after-tax money in a Roth IRA/Roth 401K. With a Roth IRA or 401k you pay taxes now on income to pay no taxes later. Most miss the point, you are paying taxes now for the benefit of withdrawing tax free later. With a Roth Conversion you pay taxes now to move money from a traditional IRA/401K to a Roth account, essentially eliminating taxes later.
With a Roth Conversion you reduce or eliminate two potential taxable events. First, once you've converted assets to a Roth account you will not need to pay taxes on distributions your first contribution to a Roth was at least 5 years ago, and you are over the age of 59.5. If you meet these criteria you will not pay taxes on distributions from a Roth IRA. Next, you will not be required to take Required Minimun Distributions (RMDs). For all, you are required to take distributions from their pre-tax/traditional IRA accounts once you reach the mandatory year. These lifelong distributions create a taxable event where you now have pay taxes on distribution. However, if you've converted your accounts to Roth Accounts you will not be required to make Required Minimum Distributions.
Although this seems like a perfect solution to a problem. It's not that easy. With Roth Conversions, timing is everything. Remember from earlier, you have to "Pay the man his Money" and pay taxes on money you are converting to a Roth account. This fact requires you pay special attention to your current tax situation, as you don't want to create a tax problem for yourself. Further, consider the more you pay in taxes the longer it will take you to earn back what you've lost. Also be aware of Medicare Income Related Monthly Adjustment Amount (IRMAA) surcharge when considering the best timing for a Roth Conversion.
Choosing to do a Roth Conversion can be an important tool to consider as you look forward to reducing your taxes over your lifetime. Careful consideration should be paid to timing and your ultimate goal for the funds you are converting. Finally, pay attention to how you invest your assets after the Roth Conversion. Consider how long it will take to earn back what you've paid in taxes during the conversion.