I Have $1 Million in My IRA. How Much of It Is Actually Mine?

You open your retirement account and see a number you’ve spent decades working toward:

$1,000,000.

That’s a great accomplishment.

But if most or all of that money is sitting in a traditional IRA or 401(k), there’s another question worth asking:

How much of that $1 million will actually be available for you to spend after taxes?

That’s where retirement planning starts to change.

During your working years, the goal was probably accumulation. You contributed to your 401(k), took advantage of employer matching contributions, invested the money, and watched the account grow.

Now you’re approaching retirement.

The question isn’t just how much you’ve accumulated anymore.

It’s what that money may actually produce for you.

A $1 Million IRA Is Not Necessarily $1 Million of Spendable Money

If your $1 million is in a traditional IRA and the money hasn’t previously been taxed, withdrawals are generally included in taxable income.

That doesn’t mean there’s one simple percentage you can subtract from the account and call the rest yours.

Your actual tax situation can depend on several things, including:

• How much you withdraw each year
• Your other retirement income
• Social Security
• Pensions
• Investment income
• Your filing status
• Your deductions
• Your future tax rates
• Where you live
• How much of your IRA consists of previously taxed basis, if any

That’s why saying, “I have a million dollars for retirement,” doesn’t tell us enough.

We need to know how that million dollars will eventually be distributed.

The Question Most People Never Asked While Building Their IRA

Think about how retirement accounts are usually discussed.

Someone tells you to contribute 10%.

Get the company match.

Increase your contribution when you get a raise.

Keep investing.

Don’t touch it.

All reasonable conversations.

But there’s another conversation that often doesn’t happen until somebody gets close to retirement:

What’s the exit strategy?

If you’ve spent 30 years accumulating tax-deferred money, eventually you have to decide how that money will come back out.

What Happens If You Simply Leave the IRA Alone?

This is one of my favorite questions because doing nothing is still a strategy.

So let’s model it that way.

You don’t have to assume a Roth conversion is automatically better.

You don’t have to assume your existing IRA is automatically better either.

Put both possibilities on the table.

If you leave the traditional IRA alone, the account can continue growing tax-deferred. When taxable money is eventually distributed, those distributions are generally included in your income.

Traditional IRAs are also generally subject to required minimum distribution rules once you reach the applicable starting age.

That creates an important retirement-planning question:

What could my future withdrawals and RMDs look like if this account continues growing?

Why RMDs Matter With a Large IRA

Required minimum distributions are exactly what the name says.

At the applicable age, the IRS requires traditional IRA owners to begin taking minimum distributions based in part on the prior year-end account balance and an IRS life-expectancy factor.

The larger your traditional IRA becomes, the more important it can be to understand what those future distributions may look like.

Imagine you’re 60 today.

You have $1 million accumulated.

You don’t need most of that money right now.

So you leave it invested.

Years later, the account may be considerably larger.

That’s great from an accumulation standpoint.

But now ask the second question:

What does a larger tax-deferred account potentially mean for future taxable distributions?

That’s the part I want people to see before they reach the point where decisions become more limited.

Where a Roth Conversion Enters the Conversation

A Roth conversion involves moving eligible money from a traditional IRA or other eligible pre-tax retirement account into a Roth account.

The taxable portion converted is generally included in income for that year.

Yes, that can mean intentionally creating a tax bill today.

And that’s exactly where many people stop listening.

“Why would I voluntarily pay taxes before I have to?”

Fair question.

I wouldn’t answer it with a slogan.

I’d run the math.

The Real Roth Conversion Question Isn’t “Do I Want to Pay Taxes Today?”

Nobody wakes up excited to pay a tax bill.

The better question is:

What happens over my lifetime under each strategy?

For example, what happens if you:

• Leave the entire IRA where it is?
• Convert a portion?
• Convert larger amounts over several years?
• Begin conversions before retirement?
• Wait until after retirement when your taxable income may change?

Those can produce very different outcomes.

And that’s why I don’t believe a useful Roth conversion conversation starts with someone telling you, “You should convert your IRA.”

We don’t know that yet.

First, we need your numbers.

The Retirement Math Method

This is why I use what I call the Retirement Math Method™.

Instead of starting with a financial product, we start with your situation.

How old are you?

How much have you accumulated?

When do you want to retire?

What other income will you have?

What are you trying to accomplish?

Are you primarily concerned about retirement income?

Taxes?

Required minimum distributions?

Leaving money to your children?

Then we model different scenarios.

I don’t want you making a retirement decision because somebody gave you a convincing sales pitch.

I want the strategy to prove itself with the math.

Could You Convert the Entire $1 Million?

Technically, an eligible traditional IRA can generally be converted in whole or in part.

That doesn’t mean converting $1 million in one year is automatically a good idea.

A large taxable conversion can have significant tax consequences.

It could move income into higher tax brackets and may affect other income-based calculations.

If you’re on Medicare, income can also affect what you pay for Medicare Part B and Part D through IRMAA.

This is why conversion planning often involves looking at multiple years rather than automatically moving everything at once.

The question becomes:

How much, if any, should be converted, and when?

Retirement Can Create a Roth Conversion Window

Here’s a situation worth examining.

Suppose you retire at 62.

Your paycheck disappears.

You haven’t started required minimum distributions yet.

Maybe you’re delaying Social Security.

Depending on the rest of your financial situation, those years could look very different from your peak earning years.

That may create a period worth analyzing for partial Roth conversions.

Notice I said analyzing.

Not blindly converting.

The tax consequences still need to be modeled.

What About Medicare?

This is another reason Roth conversions shouldn’t be planned in isolation.

Medicare uses modified adjusted gross income from an earlier tax return to determine whether higher-income beneficiaries owe an Income-Related Monthly Adjustment Amount, commonly called IRMAA.

A Roth conversion increases taxable income to the extent the converted amount is taxable.

That means a conversion may affect future Medicare premiums for some people.

Does that automatically make the conversion a bad idea?

No.

Does it mean you should ignore Medicare while planning one?

Also no.

Put it into the math.

What If Your Biggest Concern Is Running Out of Money?

Taxes aren’t everybody’s biggest concern.

Somebody can have $1 million and still think:

“What happens if my spouse and I live into our 90s?”

That’s not irrational.

Retirement can last 20, 30, even 35 years.

For this person, I don’t want to evaluate the retirement strategy solely by asking which account has the largest projected balance.

I want to look at income.

How much spendable retirement income could the strategy support under the assumptions we’re using?

What happens under different scenarios?

What happens to the surviving spouse?

Those questions can matter more than winning a contest for the largest number on a statement.

What If Your Biggest Concern Is Your Kids?

Now we have a completely different conversation.

Maybe you have plenty.

Your retirement income looks good.

You’re confident you won’t spend everything.

Now you’re thinking:

“What happens to this IRA when my children inherit it?”

Beneficiary rules changed significantly under the SECURE Act, and many non-spouse beneficiaries are subject to a 10-year distribution rule.

Traditional IRA distributions received by beneficiaries may also be taxable.

Inherited Roth IRAs have distribution rules too, but qualified Roth distributions are generally tax-free.

So if legacy is one of your major goals, inheritance should be part of the conversion analysis rather than an afterthought.

The Mistake I Don’t Want You to Make at 60

I don’t want you assuming a Roth conversion is automatically right.

I also don’t want you assuming doing nothing is automatically right.

You’ve spent decades building this money.

You deserve to see both sides.

If you’ve accumulated $500,000, $1 million, $2 million or more in tax-deferred retirement accounts, there may be a lot riding on decisions you make during the years immediately before and after retirement.

So don’t start with:

“Should I buy this?”

Start with:

“Show me what happens under each strategy.”

Questions to Ask Before Converting a $1 Million IRA

• How much of my IRA consists of pre-tax money?
• What would my projected retirement income look like if I make no changes?
• What could my future required minimum distributions look like?
• What happens if I convert portions of the account over several years?
• What tax brackets could those conversions put me into?
• Could the additional income affect Medicare IRMAA?
• When should I claim Social Security?
• Where would I get the money to pay conversion taxes?
• What happens to my spouse if I die first?
• What happens to the remaining IRA when my children inherit it?
• What assumptions are being used in every projection I’m shown?

Frequently Asked Questions

Do I have to pay taxes on a $1 million traditional IRA?

Generally, distributions of pre-tax contributions and earnings from a traditional IRA are included in taxable income. If you have nondeductible contributions or other basis in the IRA, part of a distribution may be nontaxable. Your individual tax liability depends on your complete tax situation.

Is a Roth conversion tax-free?

No. The taxable portion of money converted from a traditional IRA to a Roth IRA is generally included in gross income for the year of conversion.

Can I convert only part of my IRA to a Roth?

Yes. Roth conversions can generally involve all or part of an eligible traditional IRA. Partial conversions are one reason multi-year planning can be useful.

Do Roth IRAs have required minimum distributions?

Roth IRA owners aren’t subject to lifetime RMDs under current federal rules. Beneficiaries, however, are subject to distribution rules.

Can I convert my RMD to a Roth IRA?

No. Once you’re subject to an RMD for the year, the amount required to be distributed isn’t eligible to be converted. After satisfying the RMD, additional eligible amounts may potentially be converted.

Does a Roth conversion affect Medicare premiums?

It can. A taxable Roth conversion increases income, and Medicare uses modified adjusted gross income from an earlier tax return when determining IRMAA for higher-income beneficiaries.

Should everyone with $1 million in an IRA do a Roth conversion?

No. Account size alone doesn’t determine whether a conversion makes sense. Taxes, age, retirement income, other assets, Medicare, legacy goals, conversion timing and the assumptions used in the analysis all matter.

Want to See What the Math Looks Like With Your IRA?

If you’re 55 to 65 and have $500,000 or more accumulated in an IRA, 401(k), or other retirement account, this is exactly the kind of situation I analyze.

You don’t have to decide beforehand that a Roth conversion is right.

That’s backwards.

Let’s run your numbers first.

We’ll look at your existing strategy, model potential alternatives, and give you the opportunity to see what the projected differences actually look like.

No pressure to make a decision on the spot. The math comes first.

Schedule a No-Pressure Tax-Free Retirement Strategy Appointment

Explore More

If this question is on your mind, these three articles should be next:

• Should I Convert My IRA to a Roth IRA Before I Retire?
• Roth Conversion at Age 60: Does It Still Make Sense?
• Should I Do a Roth Conversion Before Required Minimum Distributions Begin?

Important Disclosure

This article is for educational purposes only and isn’t intended as individualized tax, legal, investment, or accounting advice. Roth conversions can create significant tax consequences and may affect other areas of your financial situation. Tax laws and retirement rules can change. Before implementing a conversion, consider working with qualified financial and tax professionals who can evaluate your individual circumstances.