November 20, 2014

Any decisions you make about converting your Roth IRA should be evaluated in light of taxes and your entire estate plan. You need to consider three primary concerns before electing to convert your Roth IRA.

Concern #1: Are You Getting the Most Out of Your IRA?

If you do some advance planning, a Roth conversion can benefit multiple generations, especially if you have a spouse. If  your spouse decides that he or she doesn’t need the assets inside the Roth because there are other forms of support, then the second spouse could disclaim receiving those benefits and hand it over to future generations. In this case, children or grandchildren would have the required distributions based on their life expectancy, allowing for a lot of tax-free growth.

Concern #2: Are You Going to Outlive Your Roth?

The primary reasons to consider a Roth conversion are to reduce the size of your taxable estate and to pass on assets tax-free. Although you can’t entirely predict longevity, you can make some estimations about your spending, your lifestyle, and your net worth. This can give you a clear picture of how you might spend down a Roth and what other assets would remain in your estate. It may be worth your time to wait for conversions until you’re no longer working and in a lower tax bracket, for example.

Concern #3: Are You Going To Gift it To Charity?

Since charities don’t have to cough up income taxes on received donations, a traditional IRA is a better gift to charity than a Roth. If you would like to maximize a gift to charity, opting to convert to a Roth could actually be the wrong move.

When you have specific estate planning concerns, you need guidance from professionals who understand the tax ramifications of your decisions. To walk through tax-saving strategies specific to your situation, contact us today at info@lawesq.net.