How Roth Conversions Can Save You Over a Million Dollars in Retirement

Understanding the Social Security Dilemma

For many approaching retirement, one of the biggest questions is when to start collecting Social Security. It’s a decision that feels both practical and emotional — after all, early benefits mean more immediate security and less reliance on your investment portfolio. However, the timing of when you start Social Security can have dramatic long-term tax consequences, especially if you’re planning on leveraging strategies like Roth conversions.

The common thought process goes something like this: “If I retire at 55 or 60, I’ll need to live off my portfolio until Social Security kicks in. If I turn on benefits at 62, that reduces the pressure on my portfolio.”

It sounds sensible. After all, getting a guaranteed $30,000 per year from Social Security means you only need to withdraw the remaining $70,000 from your portfolio if your retirement spending goal is $100,000. But while this logic feels safe, it can create a costly tax trap that quietly erodes your long-term wealth.

Let’s break this down with a detailed example to understand how delaying Social Security and using Roth conversions strategically could potentially yield hundreds of thousands — even over a million — dollars in additional wealth over your lifetime.

The Case Study: A Well-Prepared Retiree

Consider an individual, age 56, with $2.4 million in investments, primarily in a traditional 401(k). They currently earn about $350,000 per year and plan to retire at 60. Their initial plan is to start Social Security at age 67, but like many, they wonder if starting earlier — at 62 — would be wiser.

At first glance, collecting earlier feels comforting. The idea of having a steady income source while the market fluctuates is reassuring. But the data shows a different story once you examine how taxes interact with Social Security and Roth conversions.

Roth Conversions: The Hidden Power of Timing

Before exploring the impact of Social Security, it’s crucial to understand Roth conversions. This strategy involves moving money from a tax-deferred account, like a 401(k) or traditional IRA, into a Roth IRA, where it can grow tax-free. You pay taxes on the conversion now, but future withdrawals (including earnings) are tax-free.

In this scenario, our retiree’s financial model suggested that doing Roth conversions up to the 22% tax bracket between ages 60 and 64 could yield approximately $818,000 in additional long-term value.

That’s a powerful incentive to prioritize Roth conversions before Required Minimum Distributions (RMDs) begin at age 73. However, the moment Social Security income starts, the room available for efficient Roth conversions narrows significantly.

How Turning on Social Security Early Impacts Taxes

When Social Security begins, it counts as taxable income — and that’s where the problem starts.

In this example, let’s say the retiree starts Social Security at 62 instead of 67. Their $30,000 annual benefit means they now need to withdraw only $70,000 from their portfolio to meet their $100,000 spending goal.

That seems ideal, right? Less pressure on investments, a steady stream of income — what could go wrong?

Here’s what happens behind the scenes: that Social Security income pushes the retiree into a higher taxable income bracket, reducing the ability to perform Roth conversions at lower rates. In fact, the model showed that the total benefit from Roth conversions dropped from $818,000 to just $245,000 — a loss of more than half a million dollars in tax efficiency.

The takeaway? Early Social Security can interrupt the window of opportunity for strategic tax planning.

Tax Brackets and the “Crowding Out” Effect

To understand why this happens, let’s look at the 2025 tax brackets. For a single filer spending around $100,000 annually, they’re already near the top of the 22% tax bracket, with only a few thousand dollars of room before hitting the 24% bracket.

Now, if you add Social Security income, that space for tax-efficient Roth conversions disappears. Instead of converting at 12% or 22%, you might find yourself converting at 24% or higher — effectively paying more tax now for less long-term benefit.

The Capital Gains Advantage

If the retiree delays Social Security, they can draw income from taxable (brokerage) accounts instead.

For instance, suppose they own shares of Microsoft or other appreciated stocks in a brokerage account. Selling some of these holdings to fund retirement expenses results in capital gains, which are often taxed at 0%, 15%, or 20%, depending on your income level.

If total income remains modest because Social Security hasn’t started yet, those capital gains could even fall into the 0% tax bracket — meaning no tax owed on the sale.

This creates a perfect opportunity to withdraw strategically from taxable accounts and convert money from a 401(k) to a Roth IRA while paying minimal taxes. The money in the Roth IRA will then grow completely tax-free for life.

By contrast, starting Social Security early locks in taxable income and removes this flexibility.

Delaying Social Security: The Compounding Payoff

What happens if our retiree delays Social Security all the way to age 70?

In the financial projection, doing so dramatically increased the long-term benefit from Roth conversions — from $245,000 (starting at 62) to a staggering $1.2 million in added lifetime value.

This increase comes from two major effects:

1. Lower taxes on conversions: Without Social Security income crowding the tax brackets, conversions can be made at 10%, 12%, or 22% rates.
2. Larger Social Security checks: Each year you delay beyond full retirement age increases your benefits by about 8% annually until age 70.

The combination of bigger checks later and more tax-efficient conversions now creates a powerful compounding effect.

When Should You NOT Delay Social Security?

Of course, this strategy isn’t universal. Health, life expectancy, and personal goals all matter. If you’re in poor health or have a shorter life expectancy, waiting until 70 might not make sense — you could end up collecting benefits for only a few years.

The right approach balances financial optimization with emotional peace of mind. If delaying Social Security causes stress or uncertainty about market returns, it may be worth starting earlier, even if it’s not mathematically optimal.

Ultimately, retirement planning is about living well, not just minimizing taxes.

Key Takeaways

1. Delaying Social Security can significantly enhance Roth conversion effectiveness.
Waiting to collect benefits keeps taxable income lower, opening space for lower-bracket conversions.

2. Early Social Security can create hidden tax inefficiencies.
Even though it reduces portfolio withdrawals, it raises your tax base and shrinks conversion opportunities.

3. Capital gains income offers flexibility.
Drawing from taxable accounts first can allow you to stay in lower tax brackets while funding conversions.

4. Each person’s situation is unique.
Health, marital status, income sources, and life expectancy all influence the optimal Social Security start age.

5. Work with a qualified professional.
Tax laws are complex, and what looks optimal on paper can change dramatically with small variables.

The Bottom Line

Retirement is not just about saving enough — it’s about withdrawing smartly. The timing of Social Security and the use of Roth conversions are two of the most powerful levers you can pull to reduce your lifetime tax bill and secure financial freedom.

For many retirees, delaying Social Security — even just a few years — can unlock hundreds of thousands of dollars in additional after-tax income. The difference isn’t about working longer or earning more; it’s about strategic timing and tax efficiency.

In the end, the goal isn’t just to have more money — it’s to have more control and more peace of mind throughout your retirement.

Read - How Much Do You Really Need to Retire Comfortably?