Who would make a good candidate for a Roth IRA conversion?
An ideal candidate for a “strategic conversion” would be someone who: 1. Has “outside funds” (not sheltered from taxes) to pay the income tax on the conversion, 2. Will not need the Roth IRA to meet his or her annual living expenses, 3. Wants to leave a tax-free asset to children or grandchildren, and 4. Expects to be in the same or higher tax bracket in future tax years. For this group, the Roth IRA is viewed more as a wealth transfer tool rather than a retirement income vehicle. Because Roth IRA owners are not subject to required minimum distribution (RMD) rules, the funds within the account are allowed to grow untaxed. Over a period of years, this growth can be exponential. Further, although Roth IRA beneficiaries are required to take RMDs each year, these withdrawals will be tax-free. Thus, the Roth IRA is the perfect retirement asset for transferring the greatest amount of wealth. Remember the three factors that are essential to analyzing whether strategic conversions are right fo
