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Question: As I’m approaching retirement age, I am considering moving my savings from a traditional IRA to a Roth so the money is taxed now rather than when I start receiving payments. Is this something you would recommend?

Tax Partner Dave Baymiller’s answer:  These Roth IRA conversions need to be evaluated on a case-by-case basis.  You need to consider your current and projected future tax brackets, your cash on hand to pay the tax on the conversion, your estate plan, your time horizon, the expectation of growth in the fund, and your expectations on needing to tap the funds during your retirement. One nice thing about the Roth IRA is that you do not need to start taking mandatory distributions after you reach age 70 ½.  There are also some nice estate planning benefits associated with the Roth. Because you do not need to take the distributions at age 70 ½ , the IRA can grow to a larger amount than what you might experience under the traditional IRA rules which would leave more tax free money later on for your heirs.  Also, by paying the income tax now, you will be reducing the size of your estate and effectively prepaying the heirs’ future income tax without it being recognized as a taxable gift.

Dave Baymiller is a partner in the tax services area with over thirty years of public accounting experience. He practices exclusively in the area of federal, state and local taxation with an emphasis on tax planning and consulting. Learn more about Dave Baymiller’s expertise and how to contact him.