Roth Conversions for Banner Health Employees
After decades of service at Banner Health, it’s time to start planning the next phase of your life. As you approach retirement, you have a unique opportunity to optimize your tax situation through Roth conversions. This strategy could save you thousands in taxes and provide greater financial flexibility in retirement.
What Is a Roth Conversion?
A Roth conversion means moving money from a traditional, pre-tax retirement account (like your Banner Health 401(k) or traditional IRA) into a Roth IRA. This would mean paying taxes on the converted amount now, then enjoying tax-free growth and tax-free withdrawals in retirement.
Think of it as prepaying your taxes at today's rates to avoid potentially higher rates in the future. Once converted, your Roth IRA grows tax-free, has no required minimum distributions during your lifetime, and provides tax-free income in retirement.
Why the "Golden Window" Exists for Healthcare Retirees
Many Banner Health employees find themselves in what financial planners call a "tax desert.” This is the years between retirement and when Social Security, pensions, and required minimum distributions begin. During this period, your taxable income often drops significantly, potentially placing you in lower tax brackets than you've seen in years.
This window typically occurs in the years after retirement, when work income has stopped but before required minimum distributions (RMDs) and Social Security benefits. For healthcare professionals who often earn higher incomes during their careers, this presents a unique opportunity to convert retirement funds at lower tax rates.
Many Banner Health employees retire between 55 and 65, creating an ideal window for Roth conversions before Medicare and Social Security begin. If you retire at 60, you potentially have five to seven years of lower income that would be perfect for conversions.
The Expiring Tax Advantage
The Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, which means higher tax rates for many individuals starting in 2026. Current tax brackets offer historically low rates, making 2025 a great year for Roth conversions before rates increase.
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When Roth Conversions Make Sense for Banner Health Employees
1. You Expect Higher Taxes in Retirement
Many healthcare professionals assume their tax rates will be lower in retirement. However, this isn't always true. Several factors can push retirees into higher tax brackets:
Required minimum distributions starting at age 73 from your Banner Health 401(k) and traditional IRAs
Social Security benefits that become taxable as your income increases
Medicare surcharges (IRMAA) that kick in at certain income levels
Loss of tax deductions that you had while working
Future tax rate increases as government debt and healthcare costs rise
Any or all of these could leave you with a higher tax bill than you expected.
2. You Have Substantial Tax-Deferred Savings
If most of your retirement savings are in traditional 401(k)s and IRAs, you're facing a significant tax burden in retirement. Moving assets to a Roth IRA can provide more income flexibility in retirement and allow you to manage your tax brackets better during retirement.
3. You Want to Leave a Tax-Free Legacy
Many retirees want to leave something for their children and grandchildren. Roth IRAs give you better estate planning benefits because beneficiaries inherit the accounts tax-free. This can be especially useful if your beneficiaries' tax rates will be higher than your current rate upon conversion.
4. You Don't Need All Your Retirement Savings
If your Banner Health pension, Social Security, and other income sources will cover your essential expenses, you may not need to touch your traditional retirement accounts for years. If you won't need your RMDs for retirement expenses, converting those assets to Roth can eliminate future required distributions and provide more control over your taxable income.
Tips to Keep in Mind
Timing with Your Retirement Date
Many Banner Health employees retire between 55 and 65, creating an ideal window for Roth conversions before Medicare and Social Security begin. If you retire at 60, you potentially have five to seven years of lower income that would be perfect for conversions.
Coordinating with Your 401(k) Rollover Decision
If you decide to roll your Banner Health 401(k) to an IRA upon retirement, that's also an ideal time to begin a Roth conversion strategy. You can roll some funds to a traditional IRA and convert portions to Roth over several years.
Healthcare Cost Planning
As a healthcare professional, you understand the reality of rising medical costs in retirement. Roth IRAs provide tax-free access to funds for healthcare expenses, and unlike traditional IRAs, you won't be forced to take distributions that could push you into higher tax brackets or trigger Medicare surcharges.
Conversion Taxes
Some retirees plan to use IRA funds to pay for the conversion taxes. However, this strategy could negate the benefits of converting. Ideally, pay conversion taxes from taxable savings accounts or other non-retirement funds.
Higher Income
If a Roth conversion increases your taxable income, more of your Social Security benefits would be taxed, and your Medicare costs could rise. Factor these additional costs into your conversion analysis, and avoid pushing your taxable income too high.
Keeping Money Free
If you’re planning a Roth conversion, don’t convert money you’ll need soon. Your money must stay in the Roth IRA for 5 years before your withdrawals of earnings can become tax-free and penalty-free in retirement. To avoid losing those tax benefits, don’t convert funds you might need within five years.
Tax Reporting
Roth conversions are reportable but not necessarily taxable events. You'll receive forms 1099-R and 5498, and the conversion amount will be added to your taxable income for the year. Work with a tax professional to ensure proper reporting.
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How to Execute a Roth Conversion
Step 1: Decide What to Convert
You can convert funds from your Banner Health 401(k), traditional IRAs, SEP-IRAs, or SIMPLE IRAs. However, you'll first need to roll your Banner Health 401(k) to a traditional IRA if you want to convert those funds. You cannot convert directly from an active employer 401(k) while still employed.
Step 2: Open a Roth IRA
If you don't already have one, you'll need to open a Roth IRA with a financial institution. Many brokerages offer Roth IRAs with no minimum balance requirements and a wide range of investment options.
Step 3: Calculate the Conversion Amount
Work with your financial advisor or tax professional to determine the optimal amount to convert based on your current tax situation, projected retirement income, and long-term goals. Remember to consider the tax implications and ensure you have funds available to pay the conversion taxes.
Step 4: Execute the Conversion
Contact your IRA custodian to initiate the conversion. This is typically done through a simple form or online request. The custodian will transfer the specified amount from your traditional IRA to your Roth IRA. The process usually takes a few business days.
Step 5: Pay the Taxes
The converted amount will be added to your taxable income for the year. Ideally, pay the conversion taxes from non-retirement funds to maximize the benefit. You may need to make quarterly estimated tax payments or adjust your withholding to avoid underpayment penalties.
Step 6: Track the Conversion
Keep detailed records of your conversions, including dates, amounts, and any taxes paid. Each conversion starts its own five-year clock for penalty-free withdrawals of earnings.
When Professional Guidance Makes Sense
Roth conversion strategies can be complex, especially when coordinating with Social Security timing, Medicare planning, and estate goals. Many employees benefit from working with a financial advisor who can:
Model different conversion scenarios and their long-term impact
Help coordinate conversions with your overall retirement income plan
Ensure you're not inadvertently triggering higher Medicare premiums or Social Security taxes
Integrate conversion planning with your estate planning goals
At TrueWealth Financial Partners, we specialize in helping professionals like you prepare for a better retirement. We understand the unique aspects of Banner Health's benefits and can help you develop a Roth conversion strategy that aligns with your specific retirement goals.
If you're a Banner Health employee approaching retirement, now is the time to evaluate whether Roth conversions could benefit your long-term financial picture.
Schedule a free consultation with TrueWealth Financial Partners, and we’ll be happy to help you in any way we can.
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FAQs
How much should I convert?
Rather than converting everything at once, many Banner Health retirees benefit from a multi-year approach. Consider converting just enough each year to "fill up" your current tax bracket without jumping into the next one.
For example, in 2025, you might convert up to the top of the 12% bracket ($48,475 for single filers, $96,950 for married filing jointly) or stay within the 22% bracket ($103,350 for single filers, $206,700 for married filing jointly).
Can I convert my Banner Health 401(k) while I'm still working?
You typically cannot convert funds directly from your current employer's 401(k) while still employed. You'll need to wait until you leave Banner Health, then roll your 401(k) to a traditional IRA before converting to Roth. Some plans allow in-service withdrawals after age 59½, but you'd need to check with Fidelity about Banner's rules.
What's the deadline for a Roth conversion?
You must complete your Roth conversion by December 31st of the tax year you want it to count toward. Unlike some other retirement transactions, you cannot complete a Roth conversion after year-end and have it apply to the previous tax year.
Can I undo a Roth conversion if I change my mind?
No, Roth conversions cannot be reversed or "recharacterized" back to traditional accounts. This rule changed in 2018, so it's important to be certain about your conversion decision before proceeding.
Should I convert everything to Roth?
Having a mix of traditional and Roth accounts can provide better tax flexibility in retirement. You'll want to consider your expected retirement income, tax rates, estate planning goals, and other factors when determining the right balance for your situation.