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Roth IRA Conversion – Year End IRA Estate Planning

By Howard C. Stross
July 16, 2012

As this is being written, it’s the 4th of July, 2012. Virtually everyone is enjoying our great summer holiday; probably few are concerned with year-end planning. While reminding folks of a scheduled tax increase is not music to one’s ears, there is something you can do to mitigate the unpleasant aspects of paying more tax AND now is the time to do something about it.

Roth IRA Conversion

In case you’re not familiar with a Roth IRA, here’s a “nutshell” on its important features for helping you to lower your tax bill. A Roth IRA is similar to a traditional IRA. The money or other assets in the IRA are allowed to build-up without income tax being imposed.

Some things are a bit different from a traditional IRA. The contribution to a Roth IRA is with after tax money. When you have a withdrawal from a Roth IRA, the money or other assets and the growth of those assets, along with any dividends or interest that has accumulated over the years, are not taxed on the withdrawal.

There are no income limitations for a conversion from a traditional IRA to a Roth IRA. If one has a larger amount of assets in a traditional IRA or a 401(k) and you are able to rollover the qualified plan to a traditional IRA, one can establish a large Roth IRA by converting their existing plan(s).

Timing is Everything

With income tax rates scheduled to increase in 2013, now is a great to convert. The converted amount will be subject to income taxation at this year’s lower income tax rates. In years to come, when distributions are taken, one avoids the higher income tax rates AND one will not be taxed at all on withdrawals. If an additional income tax amount really gets to you, you could convert only a portion of one’s non-Roth IRA accounts instead of all of your traditional IRA funds.


Because a Roth IRA is income tax free, the Roth IRA is a powerful asset to leave to one’s beneficiaries. By converting to a Roth IRA and paying the income tax, the amount of tax paid reduces one’s estate and thus by doing so it reduces the size of one’s taxable estate and in doing so provides a great gift to your loved ones.

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