With retirement planning and taxes, there are often two ways to look at a question: First, can you do something, and then, should you do it?

For example, would it be wise for someone to convert their 401(k) into a Roth IRA 20% at a time in order to avoid taxes and RMDs? Technically, you can do this.

Consulting a fiduciary financial advisor can be a great first step to determining if you should, factoring retirement account conversions, RMDs, and the potential tax repercussions into your retirement plan. 

That's why SmartAsset created a free tool to help match you with up to three financial advisors. 

Click here to take SmartAsset’s quick retirement quiz and get matched with vetted advisors who serve your area in just a few minutes, each obligated to work in your best interest. 

Research suggests people who work with a financial advisor could end up with about 15% more money to spend in retirement.¹

A 2023 Northwestern Mutual study found that 66% of U.S. adults admit their financial planning needs improvement. However, only 37% of Americans work with a financial advisor.²

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Back to the question. 

In general, this plan could potentially work better the younger you are and the less you currently make.

On the other hand, the closer you are to retirement or the higher your current income, the more likely it could be that this won’t be worth the potential conversion taxes.

This could be a question for your own finances, not a generic or one-size-fits-all approach.

To find professional guidance that could be tailored to your situation, you click here to get matched with up to three financial fiduciary advisors for free.

Pre-tax retirement accounts, like a 401(k), are subject to required minimum distributions (RMDs). This is the minimum amount you must withdraw from your portfolio each year starting at age 73 and adds to your taxable income for the year.

Some households may want to live on other income or assets, letting tax-deferred accounts continue to grow. Others may not need this money and want to leave it to their heirs. Regardless, RMDs can potentially raise your taxes and shrink your accounts.

Roth conversions have the potential to change this outcome.

Like all post-tax portfolios, a Roth IRA is not subject to RMDs. So households trying to avoid RMDs may often convert 401(k)s into a Roth IRA. You have the ability to do this at any age and in any amount.

The only significant requirement is the assets must come from a pre-tax portfolio, and the converted assets cannot themselves be a required minimum withdrawal.

Roth conversions may have significant and immediate tax implications. Consider reviewing the best options for your situation with a fiduciary financial advisor, legally obligated to work in your best interest.

A Roth conversion has two potential downsides to consider.

First, there is the five year rule. When you convert funds from a pre-tax portfolio to a Roth IRA, that money must stay in place for at least five years or until you turn 59 1/2.

Then there are taxes. When you convert assets to a Roth IRA, you will include that amount in your taxable income for the year.

There are many ways you could potentially manage this tax event. When possible, you could consider converting a pre-tax account earlier in life. The longer you wait, the more that account could grow and the more taxes you will potentially pay on those returns.

It may also be helpful to consider converting money in stages. By converting less money each year, you could potentially reduce your tax rates and the overall amount you pay.

For example, say you hypothetically have $1 million in your 401(k). If you convert this portfolio all at once, you may pay an effective federal tax rate of 32.52%, or about $325,208 in taxes.

On the other hand, say you convert $200,000 at a time. You may end up paying an effective rate of 19.2%, or $38,400 per year, for a total tax bill of $192,000.

Note: This estimation doesn’t include any applicable state or local taxes, potential growth on your portfolio, or other nuances. A fiduciary financial advisor can help you calculate the math with more accuracy.

Is it wise to convert your 401(k) to a Roth IRA 20% at a time? While this could be one way to manage the taxes of a Roth conversion, whether that conversion is wise overall could depend on your personal financial situation and how close you are to retirement.

That’s where a fiduciary financial advisor can be invaluable.

Fiduciaries may be able to help you understand your options when it comes to planning for RMDs and minimizing your tax liability. Additionally, any conflicts of interest must be disclosed, and fiduciaries are obligated to work in your best interest.

Finding a fiduciary shouldn't be that hard. Thankfully, now it isn't.

SmartAsset’s free matching quiz can match you with up to three fiduciary advisors who serve your area. From there, you can compare and decide which advisor to work with. All advisors on the matching platform have been vetted through our proprietary due diligence process.

The quiz takes just a few minutes, and in many cases, you can be connected instantly with an advisor to have an introductory call.

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