Roth IRA Conversions: Estate and Tax Planning Information

Gordon, David J.
July 2010
Journal of Financial Planning;Jul2010, Vol. 23 Issue 7, p48
Academic Journal
• This article presents an overview of the features of the Roth IRA, including exploring guidelines for determining whether conversion from traditional IRAs to Roth IRAs makes the most sense. • One guideline suggests that the longer the interval before eventual distribution, the greater the expected benefit of conversion from traditional to Roth IRAs. • Another guideline suggests that increased return assumptions tend to favor conversion to Roth IRAs. • Finally, when distribution tax rates are higher than conversion tax rates, there is an advantage to converting to a Roth IRA even if the conversion tax is taken from the IRA. • Roth IRA conversions can also serve strategic purposes, especially in the areas of estate planning, asset protection, income tax considerations, gift tax advantages, estate tax mitigation, enhanced portfolio growth potential, and interaction with Social Security in other programs. • The article then looks to the conversion opportunity specific to 2010, and explores recharacterization and re- conversion, as well as partial recharacterizations. In the case of full re-conversions of the Roth IRA balance in an account, no gain/loss calculation is needed; however, partial re-conversions must take into account the net income attributable, the gain or loss experienced while it was in the Roth IRA. • Because Roth IRA owners and surviving spouses are not required to take required minimum distributions, Roth conversion can present a unique estate planning opportunity. • 401(k) plans, annuities, and 403(b) annuities can all also be converted to Roth IRAs, and the guidelines for each, as well as tips for implementation, are explored.


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