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Roth Conversion- What is your Saving Goal?

January 02, 2014

Insight from Attorney Richard Gregory - Is converting is the right decision for your investment needs?

We recently received some great insight from Attorney Richard Gregory, III of on our recent blog: Converting to a Roth IRA as a year-end tax strategy. We wanted to share his comments and input to help you better understand what this decision entails and give to you additional insight on how to determine if converting is the right decision for your investment needs.

Mr. Gregory points out that for him, the conversion issue comes down to what the IRA owner wants to accomplish.

If you are only thinking about your income tax, it’s a close toss-up, and few people want to pay a lot of tax now for the chance they may save later. However, if your goal is to boost passing wealth down a generation or 2, a Roth conversion is a MAMMOTH strategy.

What really makes it a good decision to convert is the ability to avoid MRDs (minimum required distributions during the lifetime of the owner (and spouse via rollover). If one converts after retirement when income may be down, say age 70, and if the survivor of the owner/spouse lives to age 90, the build-up in the Roth should be immense. A benefit to that is that then it comes out tax free for future generations under standard MRD rules for inherited IRAs.

We all talk about stretching out an IRA to prolong the tax-free investment environment for as long as possible. An investor should do everything possible to prolong this period. Avoiding MRDs during the lifetimes of owner/spouse is a HUGE advantage. In this case the entire invested balance comes out tax-free to future generations under standard MRD rules for inherited IRAs.

An added estate tax benefit to converting to a Roth- IRA is that the owner reduces his estate by paying the income tax. This acts sort of like the irrevocable “defective” trust strategy where Grantor A pays the tax on income from assets irrevocably given to B, but on a much larger scale.

When you think about making a change over to a Roth- IRA, be sure to think broadly about how this will impact your investment landscape. Think about your children and grandchildren, and what could go wrong; are they mature, good with money, divorced, etc.?

If they are unsure (and how can you possibly be sure about a 10-yr old), an IRA Inheritor’s Trust might be a better option. To learn more about this year-end tax saving method or to speak with an adviser about your planning decisions please contact any member of our tax services group at 888-KLR-8557 or email

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