Saving on Taxes with a Roth IRA Conversion

After more than 40 years of working for the railroad, Mr. Brown decided it was time to retire. He recently turned 60 and he was single with no kids, so he needed just enough income to cover himself. His company had a pension, so this would be his only fixed source of income throughout retirement. The only asset he had was a 401(k) plan, which contained a large amount of company stock. He believed that his pension alone would cover all living expenses, so he did not plan to make withdrawals from his investment. He came to us to find out what to do with his 401(k) plan and how to handle taxes if they became a problem.

Our Approach

  • Step 1

    After determining that Mr. Brown had sufficient income from the pension alone, we explored how his investments could help supplement retirement income. We recommended rolling his 401(k) plan into a Traditional IRA, giving him more flexibility regarding investments and withdrawal options, and more control over how the company stock would be handled.

  • Step 2

    Based on the findings of a tax analysis we performed, we discussed Roth conversions, which would allow us to systematically convert funds from the Traditional IRA to a Roth IRA. We explained that we would analyze the amount to convert from the Traditional IRA into the Roth IRA each year, enabling greater control over how much taxes were paid on distributions from the Traditional IRA.

  • Step 3

    We discussed his estate planning needs. While his situation is simple, we explained the importance of having appropriate beneficiaries listed on his investment accounts and an updated will.

The Solution

  • We converted a portion of his Traditional IRA each year into the Roth, thus minimizing the tax he would owe on any distributions while staying in his current/projected income tax bracket.
  • We periodically sold portions of his railroad stock to diversify his portfolio based on his risk tolerance and time horizon.
  • We helped him name appropriate beneficiaries on his Traditional IRA and Roth IRA so that his asset will pass through to the desired parties efficiently without going through probate. We also assisted in the meeting with the lawyer when his will was established.


  • Over time, the Roth conversions minimized his overall tax liability by a significant amount, and the distributions from the IRA are now growing tax-free.
  • His portfolio is well-diversified (while keeping a portion of company stock) designed to reduced volatility.
  • His will has been updated and all assets are titled with the appropriate beneficiaries.
  • We continue to meet regularly to update his financial situation as his needs and goals evolve.
Man sitting with his dog

The preceding case study is for illustrative purposes only and may not be representative of the experience of other clients. Actual performance and results will vary. This case study does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted regarding your specific situation.