Roth Conversion Calculator
Have an 72 year old client who has a small IRA that is inquiring about passing the IRA to his grandchild. I want to look at all alternatives. We have covered a stretch IRA but he would like to see the tax impact of converting the IRA to a Roth.
Does anyone know of a good source with a Roth Conversion calculator that will show the tax impact?
Permalink Submitted by Alan Spross on Tue, 2007-10-09 19:48
In looking at the conversion exclusively from a tax standpoint, you would consider your marginal rate for the conversion vrs. the estimated tax rate for the grandchild. If the GC has just graduated from medical school, good chance his tax rate is going to be higher than yours over his life expectancy, but in most cases there is no way to estimate what average tax rate will apply when the beneficiary opts to take distributions, and no way without the controls of a trust to be sure the beneficiary stretches the IRA at all. Both the Roth and the TIRA are subject to RMDs when inherited by a non spouse starting the year following your death.
A Roth conversion if client qualifies will increase his taxes in the year(s) of conversion, but will reduce his future RMDs. If this IRA is very small, it would be nice to convert it because an inherited Roth is always more valuable than a TIRA if the beneficiary has tax liability.
Permalink Submitted by Steven Gallo on Wed, 2007-10-10 14:27
Can you convert am IRA in RMD status into a Roth?
Permalink Submitted by Al Fry on Wed, 2007-10-10 15:31
Sure, but the RMD cannot be converted. The RMD should be removed first, then execute the conversion. If one had earned income, an annual Roth contribution could be made in addition to the conversion, if income limits allow.