The Dave Ramsey Roth Strategy Most Retirees Have Never Heard Of - And It's Worth Six Figures

Converting a traditional IRA to a Roth IRA can be a smart retirement move, but doing it the wrong way could cost you more in taxes than necessary. Financial guru Dave Ramsey has one word of advice.

Ramsey suggests a strategy that could potentially save you thousands of dollars in taxes so you can keep more of your money.

What is a Roth IRA conversion?

A Roth IRA conversion allows you to move money from a pre-tax retirement account into a Roth IRA. Both traditional IRA accounts and traditional 401(k) accounts are eligible for such conversions.

When you make this conversion, you must pay taxes on the amount of money going into your Roth IRA. However, from that point on, the money you convert will never again be subject to taxation.

Why Roth conversions often make sense

Retirees who engage in Roth conversions often do so with the aim of lowering their tax bill in the future.

Anyone who has money in a traditional IRA typically is subject to required minimum distributions (RMDs) upon turning 73. This means they must withdraw a specific amount of their nest egg each year whether or not they need the money.

RMDs can trigger large tax bills for retirees, particularly if a retiree has a lot saved in their IRA and the amount they must withdraw as part of the RMD pushes them into a higher tax bracket.

The 'dribble' strategy for Roth IRA conversions

Ramsey is a proponent of Roth IRA conversions, but he recently used his radio show to suggest a strategy that can make such moves more tax-efficient.

His advice could be described as a "dribble" strategy.

Instead of converting all at once, he recommends a series of smaller conversions year by year that will keep you from bumping higher into the next tax bracket.

Ramsey characterizes this approach as "do a little bit a year and kind of dribble it out."

The wisdom behind Ramsey's strategy

You could save a boatload of money by converting a traditional IRA to a Roth in small slices year by year instead of in one large taxable event.

In fact, the 24/7 Wall Street website did the math. If you convert $1.5 million in traditional IRA money to a Roth IRA in one shot, it could trigger a federal tax bill of $475,000 to $500,000.

On the other hand, spreading the conversion over 10 years at $150,000 annually cuts the tax bill to $290,000 to $310,000. That is a savings of well over $100,000.

How the 'dribble' strategy reduces IRMAA risk

Another advantage of using the dribble strategy when converting to a Roth is that it can prevent you from falling over Medicare's income-related monthly adjustment amount (IRMAA) cliff.

Retirees who enroll in Medicare and earn a lot of income may be subject to an income-related monthly adjustment amount (IRMAA). This increases their Medicare Part B and Part D premiums.

In 2026, an IRMAA applies to individuals with a modified adjusted gross income above $109,000 and married couples filing jointly who earn more than $218,000.

How the 'dribble' strategy protects Social Security benefits

The higher your income in retirement, the more likely it is that you will pay taxes on Social Security benefits. For this reason, it may make sense to plan all your dribble conversions prior to filing for Social Security.

If you wait until after filing for benefits to make conversions, remain mindful of not pushing your income so high that you will end up paying large amounts of tax on your benefits.

Avoiding an obsession with keeping taxes low

The dribble strategy can help keep taxes lower when you make Roth IRA conversions. However, it's probably a mistake to become obsessed with keeping taxes low during the conversion process.

Ramsey says it's OK to move up a bracket or two when converting as long as you avoid the top tax brackets.

So, don't let the perfect be the enemy of the good. The dribble strategy can reduce taxes on Roth IRA conversions, but it won't eliminate them.

Should you use the 'dribble' strategy?

The dribble strategy is really nothing new. Financial advisors and tax professionals have long advocated using a gradual approach to Roth IRA conversions as a way to keep future taxes lower.

In many cases, this strategy will pay off by lowering your tax bill. However, everyone's tax situation is different, and it's foolish to assume that any general tax strategy is automatically the right approach for you.

Before executing Roth conversions with a dribble strategy, consider meeting with a financial professional who can help you explore your options.

Bottom line

Ramsey's dribble strategy can be a good method for making Roth IRA conversions while also keeping taxes low. That outcome can help you stretch your retirement dollars further.

Just remember that all financial strategies have pros and cons, and what makes sense for one taxpayer might not be prudent for another. Consult with a tax professional or other expert before deciding which strategy is right for you.

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