You and Your Spouse Have Two IRAs. Which One Should You Convert First?

If you and your spouse each have a traditional IRA, you might assume a Roth conversion decision is straightforward. Pick an amount, pay the taxes, move the money to a Roth, and move on.

But there can be more to the decision when you’re married.

The question isn’t always simply how much you should convert. It can also be whose IRA you should convert first.

That distinction matters because you and your spouse may have very different ages, income sources, account balances, and future tax situations. Treating the two IRAs as though they’re interchangeable can cause you to overlook planning opportunities — and in some cases, cost you more in tax than necessary.

Start With the Bigger Picture

At first glance, converting money from the larger IRA might seem obvious. That account has more money that could eventually be subject to required minimum distributions.

But that’s only part of the equation.

Consider a couple where the husband is 68 and has a $900,000 traditional IRA. He also has pension income and is already generating substantial taxable income. His wife is 64, recently retired, and has a $300,000 traditional IRA — considerably less taxable income this year.

Even though his IRA is three times larger, her account might be the better place to begin a Roth conversion. Why? Because the couple may be able to use some of her available tax-bracket space without adding as much additional taxable income as they would by converting the same amount from his account.

That doesn’t mean her IRA should always be converted first. Their situation could look different next year, and the larger account may eventually become the greater priority because of future required withdrawals. That’s the point: the answer can change from year to year.

A useful way to think about it: a conversion needs to make sense both for the tax you pay today and for the taxes you may avoid later. The spouse whose IRA can be converted at a reasonable current tax cost may be the better place to start — even if that account has a smaller balance. A Roth conversion strategy for a married couple should respond to the household’s changing income, ages, tax situation, and retirement needs, rather than follow a permanent rule about which account comes first.

Age Can Change the Decision

Age is one of the first things worth looking at.

If one spouse is older, that spouse will generally reach the age where required withdrawals begin sooner. A large traditional IRA left untouched could keep growing and eventually create larger taxable withdrawals than the household actually needs, potentially pushing income higher in later years.

That doesn’t automatically mean the older spouse’s IRA should be converted first. But it’s a reason to look at that account closely, particularly if it’s projected to grow substantially beyond what will be needed for retirement spending.

A younger spouse, on the other hand, has more years for a Roth account to potentially grow without mandatory withdrawals during that spouse’s lifetime. Money converted earlier for a younger spouse also has more time to compound.

So there can be competing considerations: reducing future RMD pressure on the older spouse’s account versus giving Roth assets more time to grow for the younger spouse. The right answer depends on how those factors fit with the rest of the couple’s financial picture.

Don’t Forget About Income From Other Sources

Your IRA doesn’t exist in isolation.

A couple might have Social Security, a pension, investment income, part-time earnings, or rental income. Adding a Roth conversion on top of those sources can push household income into a higher tax bracket — and it can also affect other income-related costs elsewhere in a retirement plan, such as Medicare premiums.

This is why a conversion that looks attractive when you only look at the IRA balance can look very different once the whole tax return is on the table. Sometimes the spouse with the smaller IRA is the better candidate for a conversion in a given year, simply because that spouse has more room within the tax bracket you’re targeting.

What a Conversion Actually Costs You

It’s worth being direct about the trade-off, since this is often glossed over.

• You’re paying tax now, on purpose. The amount converted generally counts as taxable income in the year of the conversion. If the tax is paid from the IRA itself rather than from money outside the retirement account, less money ends up in the Roth and has the opportunity to grow there.
• The conversion generally can’t be undone. Once you’ve converted the money, you can’t simply reverse the decision through a Roth recharacterization. That makes it important to determine the amount carefully before the conversion takes place.
• A large conversion can have ripple effects. It can affect things such as the taxation of Social Security benefits, Medicare premium tiers, and eligibility for certain tax benefits — not just your marginal tax bracket.
• Previous nondeductible IRA contributions can complicate the calculation. If either spouse has made nondeductible contributions to traditional IRAs, determining how much of a conversion is taxable can require additional care.

None of this means conversions are a bad idea. It means the “cost” side of the decision deserves as much attention as the potential future tax savings.

What Happens When One Spouse Dies?

This is one of the most overlooked parts of the conversation.

A married couple filing jointly generally has more room in each tax bracket than a single filer does. When one spouse passes away, the survivor’s filing situation can change, potentially leaving the survivor with similar sources of income but less room before reaching higher tax rates.

That shift can make required withdrawals from a large traditional IRA more expensive for a surviving spouse than they were while both spouses were filing jointly.

That’s what makes the years while both spouses are alive an important window for tax diversification — having some money in traditional accounts and some in Roth accounts — so the eventual survivor has more flexibility over where retirement income comes from.

Instead of being dependent on large taxable withdrawals from a traditional IRA, the surviving spouse may have more choices about which account to draw from in a given year.

It can also matter for anyone who eventually inherits the accounts, since inherited retirement accounts are subject to their own distribution rules.

Maybe You Shouldn’t Convert From Just One IRA

There’s another possibility couples sometimes overlook: you don’t have to choose one spouse’s IRA exclusively.

A couple may benefit from converting portions of both accounts in the same year, or in different years, depending on how income changes. For example, a lower-income year for one spouse might be the right moment for a modest conversion from that spouse’s account, while a larger conversion from the other spouse’s IRA might make more sense a few years later when income patterns change.

There’s no rule that says “always convert the larger account first.” The better approach is to build a plan around the household’s current tax situation, expected future income, ages, account balances, and long-term goals — then decide account by account and year by year.

What About the Money You’re Leaving to Your Children?

Roth conversions can also become part of a legacy conversation.

If you expect to leave retirement accounts to your children, the tax character of those accounts matters to them too. Inherited retirement accounts have their own distribution rules, and your children’s tax situations may look very different from yours.

A couple planning to leave substantial retirement assets behind may want to consider not just, “What does this conversion cost us today?” but also, “What could this mean for the people who eventually inherit what’s left?”

That doesn’t mean a Roth conversion should automatically be done for the benefit of your heirs. Your own retirement security and tax situation come first. But if leaving money to children is an important part of your plan, the tax characteristics of those assets deserve a place in the conversation.

So, Whose IRA Should You Convert First?

There isn’t one answer that fits every couple.

The spouse with the larger IRA may be the logical starting point. The older spouse may be the priority because of upcoming required withdrawals. The younger spouse may have a better long-term growth window. Or converting portions of both accounts, spread across several years, may make the most sense.

The important thing is to treat this as a couple’s retirement strategy — not two separate IRA decisions made in isolation.

Before converting anything, it’s worth mapping out current taxable income, expected income in future years, how a conversion might interact with Medicare premiums and Social Security taxation, when required withdrawals begin for each spouse, and what you ultimately want the money to accomplish — for yourselves and for whoever inherits it.

A Roth conversion can be a valuable planning tool. But the most useful question was never simply whether to convert.

It’s which account, how much, and when.

Schedule your discovery call TODAY to take a closer look at your plan.