After much soul searching, I can think of no greater gift than a tax-free income for life made possible via a designated beneficiary on a ROTH IRA. Perhaps the only thing that comes close is the Stretch IRA designated beneficiary that permits the conversion of big tax balloon payments into streams of income -- taxable income.
When does a ROTH IRA conversion makes sense?
The answer is simple: For folks who have accumulated more in qualified retirement plans than they need for income. And those who are forced into taking RMDs at a heavy loss from 401(k)s in the market.
RMDs at a loss! That's what I personally labeled the IRS Forded Liquidation Sale at a loss of which you can never recover because those shares are sold... gone! Don't need the income? It's wise to consider a ROTH IRA Conversion and stop the IRS Forced Liquidation Sale.
Stretch IRA rollover and ROTH IRA conversion... the new split annuity
People who can satisfy retirement income needs from just a portion of the accumulation in a qualified retirement plan should explore a split IRA rollover and a ROTH IRA conversion. Develop a stretch IRA to satisfy income and convert the balance into a ROTH IRA. You're going to pay income-tax on the conversion but it just might be wise and less costly to cut short and eliminate the future tax obligation. A stretch IRA or a ROTH IRA conversion? It doesn't have to be one or the other you can have both.
Single Premium Immediate Annuity (SPIA) and a ROTH IRA conversion
Financial University studies and economists around the globe have concluded that income annuities can provide an income for life at a cost as much as 40 percent less than a stock, bond and cash mix. Getting economists around the globe to agree on anything is a rare consensus. Based upon that rare consensus it may be wise to transfer 60 percent of the retirement account into an income annuity and do a ROTH IRA Conversion on the 40 percent... you're never required to take a distribution from the ROTH IRA and your designated beneficiaries can benefit greatly from a tax-free income for life.
The new deal
A premium bonus fixed-indexed annuity with a powerful LIBR to satisfy retirement income and a premium bonus fixed indexed annuity for a ROTH IRA conversion can provide guaranteed retirement income for life with tax-free growth and future tax-free income available on the day inflation and the cost of living dictate an increase in retirement income. If that day never comes your family heirs can enjoy tax-free income for life.
2010: The year of monster ROTH IRA conversions
TIPRA - The Tax Increase Prevention and Reconciliation Act -- has paved the way for monster ROTH IRA conversions with a big tax break. The ROTH conversion prohibition for folks with a MAGI of $100,000 or more goes away January 1, 2010.
Procrastinate and your client or his or her estate will pay the income tax someday. It is better, for many people, to cut short future taxation with a three- or four-year tax spread, while building tax-free income.
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