By: Martin M. Shenkman, CPA, MBA, JD
Roth IRA Conversions
Money Matters Radio – Estate Planning Checklist
Introduction/Overview: The hot topic remains Roth conversions. Should you, or shouldn’t you, convert your regular IRA to a Roth? While there has been much analysis, and sophisticated models have been developed to help you make the analysis, what about the estate planning perspectives on the issue?
First, a quickie review. The benefit of converting your IRA to a Roth is that there are no minimum required distributions from a Roth for you as the contributor, no income tax cost on taking money out when you do. All good stuff. But you have to pay the income tax upfront in order to convert. Too many people that shouldn’t convert seem to be doing so. While we cannot provide a full analysis in this short summary a few comments might help:
What unique estate planning issues are involved in this decision process? Consider the following items?
√ Asset Protection:
√ Reduce Your Estate: If you convert and pay income tax now the tax you pay is removed from the value of your estate. In some close call cases that might be enough to push your estate below the threshold at which an estate tax return has to be filed. If you have to pay estate tax it should reduce the tax due. That is a neat savings!
√ Great Asset to Bequeath: A Roth IRA is a tax free asset to bequeath to heirs. Your heirs can then stretch out the payments over their lifetime. That’s a double winner. If you are leaving some assets to your grandchildren, what a great, perhaps almost ideal asset to bequeath!
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