Personal Finance

I’m Retiring at 50 With $9 Million in Assets – Should I Convert My 401Ks to Roth to Avoid Future RMD Taxes?

David Beren

Published: March 8, 2025 12:26 pm

In the case of many individuals investigating the FIRE (financial independence, retire early) lifestyle, there is always a question about the best moves. What works for one individual and how they structure their accounts may not work for another person who wants something completely different. 

One Redditor posting in r/fatFIRE is wondering exactly what their strategy should be as they consider retiring at 50. With a hopeful goal of $9 million, the biggest question isn’t whether to retire, but whether to withdraw and convert a 401(k) into a Roth IRA. 

There are no easy answers in any of these cases, but it sure is interesting to see how the members of the FIRE community think and how close many of them are to leaving the workforce for good. 

The Scenario 

As it stands, this individual Redditor is looking to step away from working at 50. If successful, he would have around $5 million in a brokerage account, $3 million in a 401(k), half a million in a Roth IRA, and another half million in a Health Savings Account. 

If everything goes well, the plan is to live on $150,000 per year without any debt. However, to do this, this Redditor is looking at various strategies to minimize their tax burden. The first approach is to begin withdrawals on the brokerage and at the same time, withdraw from the Roth IRA to avoid paying taxes. 

A second scenario involves trying to withdraw and convert the 401(k) into a Roth IRA and then leaving the HSA for medical bills. Unsurprisingly, many “FIRE” people are concerned about what an RMD ultimately looks like with the Roth IRA and how that could mean being squeezed into another tax bracket or just being taxed a larger sum of money in general. 

So, the big question is, what should this Redditor do? 

The Pros of Converting

It’s important to note that while the individual doesn’t mention this, they should consider talking to a financial advisor for the most accurate information on taxes, penalties, etc. Having this conversation could be an eye-opener to the overall risks as well as the positives of any move. 

This said, the pros of doing this conversion would be that Roth IRAs don’t have any RMDs, so this Redditor doesn’t have to worry about a future tax burden. Better yet, if you convert from the 401(k) to the IRA, any growth in the Roth account would be tax-free, which is beneficial considering you have a 23-year age gap (50 – 73) before any RMDs would be mandatory. 

Separately, over the next 23 years, this Redditor can convert different size amounts in the 401(k) to get a lower tax rate if they keep their taxable income lower by living off what’s in the brokerage account first. 

The Cons of Converting

Let’s assume, for the moment, this conversion will happen. The biggest risk is that the Redditor will take a tax hit on any converted dollars. If you tried to do all $3 million at once, you’d likely pay the highest tax bracket, immediately consuming a sizable chunk of money. 

Separately, the RMDs may not be as big a deal as this Redditor suggests. If the $150,000 annual spending holds true, this individual may not even need to touch the 401(k) until RMDs hit at 73. If this individual is married and filing jointly, they are only moving into the 32% tax bracket, which isn’t wholly catastrophic. 

The Next Move

To wrap up this recommendation, the biggest takeaway, and many of the Reddit comments in the post agree, is that this Redditor should make the conversion, but not all at once. Instead of trying to convert all $3 million simultaneously, the recommendation would be to make a multi-year move between 50 and 72 years of age to keep spreading out the tax hits and stay in a lower bracket during these years. 

Living off the brokerage initially is the preferred move, while the Roth and HSA are there for tax-free growth, and the 401(k) sits until it’s either converted or an RMD makes sense at 73. All in all, these steps would keep your tax rate low and reduce the RMD headaches this Redditor has later.