Each case is different. Not everyone should do large conversions. Some people shouldn't do any conversions. However, many people don't understand the benefits of Roth convesions. They're underused rather than overused.
Probably the largest benefit of the Roth conversion for those who have other money with which to pay the tax on the conversion is that by paying the tax on the conversion out of other assets, you're effectively making a substantial additional contribution to the IRA.
Probably the next largest benefit is that there are no RMDs from a Roth during lifetime.
There's a large benefit for IRA owners in states that have a state estate tax. The income tax deduction for the estate tax on a traditional IRA only covers the Federal, but not the state, estate tax. By converting, you remove the income tax from your estate, thus avoiding that problem.
If you provide for your children in trust rather than outright, as almost all of our clients do, you avoid the tradeoff between making distributions to save income tax at the cost of giving up asset protection, and retaining the IRA benefits in trust at the cost of paying additional income tax.
The tax rate play is often a bonus.
Probably the largest benefit of the Roth conversion for those who have other money with which to pay the tax on the conversion is that by paying the tax on the conversion out of other assets, you're effectively making a substantial additional contribution to the IRA.
Probably the next largest benefit is that there are no RMDs from a Roth during lifetime.
There's a large benefit for IRA owners in states that have a state estate tax. The income tax deduction for the estate tax on a traditional IRA only covers the Federal, but not the state, estate tax. By converting, you remove the income tax from your estate, thus avoiding that problem.
If you provide for your children in trust rather than outright, as almost all of our clients do, you avoid the tradeoff between making distributions to save income tax at the cost of giving up asset protection, and retaining the IRA benefits in trust at the cost of paying additional income tax.
The tax rate play is often a bonus.
Statistics: Posted by bsteiner — Sat Feb 01, 2025 10:05 pm — Replies 23 — Views 1078