Roth conversions
Dear Terry,
I am 78 years old and have both a traditional IRA and a Roth IRA established more than 10 years ago. I would like to make Roth conversions from my traditional IRA to my Roth IRA, which I am leaving to my children and grandchildren. I hope to do this over the next several years and leave them a tax free inheritance. When I die, are there any tax consequences for my heirs when they remove funds from my Roth IRA? I have read about things called a 5 year rule, but I don’t understand how it works for my children and grandchildren in the case of my death.
Thanks again for your help.
Dave Weber
Terry Says
Well, let me approach this in two different ways.
Yes, non-spousal beneficiaries such as your children and grandchildren do not pay taxes when they withdraw from an inherited Roth IRA that was established for at least 5 years. They have 10 years to take all the money out– again, tax-free.
BUT, if you do a Roth Conversion NOW, it will add to your ordinary income –and require you to pay taxes now. That leaves you less of your savings to live on, should you need the money. (And it is always best to pay the taxes with money OUTSIDE of your IRA.)
Even worse, that increase in income could result in an increase to the taxation of Social Security benefits, and your Medicare Part B and D premiums! That would essentially defeat the purpose of doing the Roth Conversion.
Please read this article I wrote recently about the topic: https://www.terrysavage.com/roth-conversions-2/
And to get specific advice on the impact on your situation, please use the Roth Conversion calculator at MaxifiPlanner.com.
