Retirement planning isn’t just about saving as much as you can. It’s about keeping as much of it as possible for you, your family, and places you care about and giving as little as possible to the IRS.
If you’re reading this, you likely know the value of saving, but the tax implications of your retirement accounts can make or break your financial future. Without smart planning, you could face gut-punch of a tax bill.

Let’s talk about why Traditional IRAs can be a tax trap, why Roth IRAs are often a better choice, and how you can defuse the ticking tax time bomb—especially if you’ve got a hefty IRA balance.
The Allure of Tax DeferralMost folks save for retirement through employer plans like 401(k)s, 403(b)s, or 457s. These plans are great because of automatic contributions and, better yet, tax-deferred growth.

The IRS lets you skip paying taxes on contributions in the year you make them, and your investments grow tax-free until you withdraw. It’s a sweet deal: lower your taxable income now, avoid capital gains taxes, and build a nest egg.

But here’s the catch; deferral isn’t forgiveness. When you retire and start pulling money from a Traditional IRA (where most 401(k) funds end up), every dollar is taxed as ordinary income. Big withdrawals for a dream vacation, home remodel, or helping your kids could push you into a higher tax bracket.

Worse, once you hit age 73, the IRS forces you to take Required Minimum Distributions (RMDs), taxing you whether you need the money or not. If your IRA balance is substantial (e.g. $500,00+) you’re sitting on a tax time bomb that is going explode for you or your heirs.

Why Roth IRAs Are Better Than Traditional IRAs

Unlike Traditional IRAs, Roth IRAs are funded with after-tax dollars, meaning you pay taxes upfront. In return, your withdrawals in retirement, including all growth, are tax-free, as long as you’re 59½ and the account has been open for five years.

No RMDs, no tax surprises, just flexibility.
Imagine a $500,000 Roth IRA growing to $1 million. You (or your heirs) can withdraw every penny tax-free. With a Traditional IRA, that $1 million could lose 24–37% to taxes, based on today’s historically low tax brackets.

More than that, you get to decide when and how much to withdraw, without having to worry about taxes. Since the money has already been taxed and never will be again, you have flexibility and freedom on your withdrawals.

Proverbs 13:22 says: “A good man leaves an inheritance to his children’s children,
but the sinner’s wealth is laid up for the righteous.” (All of Proverbs 13 is pretty good for financial wisdom)

Roth IRAs are a tax-free inheritance and are infinitely better to inherit than Traditional IRAs.
Your kids can stretch withdrawals over 10 years, enjoying tax-free growth. However, traditional IRA distributions are going to have a tax cost.

Historically Low Tax Brackets: A Golden Opportunity

Gambling on Traditional vs. Roth based on future tax rates is risky because nobody knows what they’ll be in 10 or 20 years. But right now, in 2025, federal tax brackets are historically low, thanks to the Tax Cuts and Jobs Act of 2017.

The top federal bracket is 37% for incomes over $609,350 (single) or $731,200 (married filing jointly). Compare that to the 1980s, when top rates hit 50%, or the 1970s, when they reached 70%. Even the 24% bracket (covering incomes from $100,526 to $191,950 for singles, or $201,051 to $383,900 for couples) is a bargain compared to historical norms.

Ed Slott, a renowned IRA expert, emphasizes that these low rates are a “tax sale.” Paying taxes now at 24% to convert Traditional IRA funds to a Roth could save you from much higher rates later; especially if tax rates rise post-2026 or your RMDs push you into a higher bracket.
For example, converting $50,000 annually at 24% costs $12,000 in taxes today. If future rates climb to 33%, that same $50,000 withdrawal could cost $16,500. Over years of conversions, those savings add up.

Why Convert at the 24% Bracket?Slott advocates for strategic Roth conversions, particularly when you’re in the 24% bracket, because it’s a sweet spot: high enough to cover significant income but low enough to minimize the tax hit. Here’s why it makes sense:

Lock in Low Rates: Paying 24% now is smarter than gambling on future rates, especially with federal debt at $33 trillion and pressure to raise taxes.Reduce Future RMDs: Converting reduces your Traditional IRA balance, lowering mandatory withdrawals that could push you into the 32% or 37% bracket.
Tax Planning Flexibility: Spread conversions over years to stay within the 24% bracket, avoiding a big tax spike. For example, a couple could convert up to $383,900 in 2025 and stay at 24%, assuming no other income.
This strategy requires precise calculations; project your income, deductions, and tax brackets with a professional to avoid overshooting into the 32% bracket. Done right, you’ll lock in today’s low rates and save thousands over your lifetime.
The Inheritance Nightmare: Traditional IRAs Over $500,000If your Traditional IRA exceeds $500,000, it’s a tax disaster waiting for your kids. The SECURE Act of 2019 changed the rules we were all used to: non-spouse heirs (like your children) must empty inherited IRAs within 10 years. For a $500,000 IRA, that’s roughly $50,000 per year, taxed as ordinary income on top of their regular earnings. If your child is in the 24% bracket, they’ll owe $12,000 annually in federal taxes (plus state taxes). A $1 million IRA doubles that pain, potentially pushing them into the 32% or 37% bracket.

Worse, those withdrawals could increase their taxable income, reducing deductions, credits, or financial aid eligibility. Ed Slott calls this “taxable income acceleration”—your kids get slammed with taxes you could’ve avoided. A Roth IRA, by contrast, passes tax-free. Your heirs withdraw funds without owing a dime, preserving more of your legacy.

Strategies to Defuse the Tax Bomb

You can’t predict future tax rates, but you can act on today’s rules. Here are three ways to defuse the bomb:
Convert to a Roth IRA: Work with a tax professional to convert portions of your Traditional IRA to a Roth, ideally in the 24% bracket. Spread conversions over years to manage the tax hit. This reduces RMDs and gives you tax-free withdrawals later.
Use Qualified Charitable Distributions (QCDs): If you’re 70½ or older, donate up to $100,000 annually from your IRA to charity. QCDs count toward RMDs but aren’t taxed, lowering your taxable income. It’s a win for you and your favorite causes.
Diversify Savings Now: If you’re years from retirement, prioritize Roth contributions (401(k) or IRA) and HSAs for tax-free medical expenses. Even taxable brokerage accounts offer flexibility, with lower capital gains rates compared to ordinary income taxes.

Prevent the Bomb Before It’s Built

If retirement is a decade or more away, build tax flexibility now. Max out Roth 401(k) or Roth IRA contributions, especially if your income is moderate (keeping you in lower brackets). Use HSAs for healthcare savings, and invest in taxable accounts for long-term growth. Diversifying account types gives you options to manage taxes in retirement.

The Bottom Line

Your retirement savings are only as good as your tax strategy. Traditional IRAs offer upfront tax breaks but can leave you and your heirs with a massive tax bill, especially if your balance tops $500,000. Roth IRAs, with their tax-free growth and withdrawals, are often the smarter choice. With historically low tax brackets in 2025, converting at 24% is a no-brainer for many, as Ed Slott points out. Start planning now—consult a financial advisor or tax pro to crunch the numbers. Defuse the tax time bomb today, and you’ll thank yourself (and so will your kids) tomorrow.