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Roth IRA Conversions for High Income and Affluent Families

Roth IRA Conversions for High Income and Affluent Families

September 15, 2023

Due to the income limitations on making contributions to a Roth IRA, many affluent taxpayers have not taken advantage of the amazing tax and estate planning benefits of a Roth IRA. These benefits include the following:

-Investments in a Roth IRA grow tax free…

-Distributions from a Roth IRA are not taxable and not subject to penalty as long as you’ve held the Roth for at least five years and are over the age of 59 ½.

-Unlike Traditional IRA’s, there are no required minimum distributions from a Roth until after the death of the account owner.

-Traditional IRA’s which are inherited by a non-spouse must be “emptied” within ten years and taxes must be paid on the distributions.  The 10 year rule will throw many inheritors into much higher tax brackets than usual for them. Although inherited Roths are also subject to being “emptied” within ten years, the distributions are generally not taxable. Thus, inheriting a Roth IRA is much more valuable than inheriting a Traditional IRA.

Converting funds from traditional IRA accounts into a Roth IRA is one solution for affluent taxpayers looking to grow Roth IRA balances. The downside of initiating a Roth conversion is that taxes must be paid in the year of the conversion…so the decision cannot be taken lightly. Tax and financial planning are critical when evaluating the option and executing on the conversion. The most obvious opportunities for the Roth conversion are years when taxable income is unusually low.

Let us know if you have any questions or want to discuss how this opportunity may benefit you and your family.


Matt and Andrew