Accumulating a large balance in a traditional retirement account is a great thing in theory — until the reality of required minimum distributions (RMDs) sets in. Suddenly, the freedom that comes with having a gigantic nest egg becomes a potential tax liability that could come with hidden consequences, like Medicare IRMAAs that drive your costs up substantially.
Let's take the example of a 63-year-old couple living in New York State (in a suburb of NYC) who are sitting on $4.2 million. They want to convert a good chunk of that sum to a Roth IRA. From there, they'll enjoy tax-deferred growth on that money, tax-free withdrawals, and importantly, no RMDs.
