The 10% Rule: A Misguided Quest for Tax Efficiency In recent years, financial advisors and bloggers have touted the benefits of converting a portion of one's 401(k) to a Roth IRA each year.
Some recommend converting up to 10% of the account balance annually to minimize taxes and required minimum distributions (RMDs). This strategy may seem appealing at first glance, but it demands closer scrutiny.
The Roth IRA offers tax free growth and withdrawals, as well as no RMDs. However, there's a crucial trade off: the cost of conversion itself.