The WSJ article notes that some investment advisors advocate converting all or part of a traditional retirement account to a Roth simply to benefit your heirs if you don’t need the money for living expenses. However, you also need to consider your own cash needs and possible tax law changes. Withdrawing a sizeable sum of money in the years immediately following conversion extends the length of time it takes to reach the break-even point. This is the point when the big upfront tax bill you pay at conversion is outweighed by the benefit of the money growing tax-free in the Roth. The cost-benefit analysis of converting a Roth depends on the expected rates of return, withdrawal rate, and other factors. These factors include how the IRA income from the conversion may affect your tax bracket and the taxation of Social Security benefits.

The article warns that the rules for inherited IRAs might change. Presently, beneficiaries of inherited IRAs must start distributions, but have the option of spreading those payments out over their expected life spans. Legislation has been proposed to get rid of this option and mandate full disbursement over a period of five years, for example.

There are numerous strategies for leaving assets to heirs, the article states. It suggests that you do your research and consider hiring an estate-planning attorney to help you assess your options. Also, the article suggests that you speak with your heirs about your plans.

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
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