using rmd to purchase roth?
I am retired. I have an ira and an ira rollover. I have been advised at a recent meeting with my att. that there is no way to protect my ira’s from probate. His only suggestion was, if I could afford the tax consequences, to cash in the ira’s and place the money in a bank account which could then become part of my trust. Two reasons that I feel this is not a good idea. One, the tax consequences would be substantial. Secondly, a bank account does not allow for securities investments. Clearly there is little money to be made on investments in a bank account. The only alternative I can come up with is to take the yearly rmd and place it in a roth.
Not a fast way to move money but I have no other ideas. Anyone have another solution for this situation??
Thanks
Permalink Submitted by Chris Bowles on Sat, 2010-02-06 14:31
I believe your IRA with proper beneficiary designations will be allowed to bypass probate. It will have to be probated if you do not name a beneficiary or you name your estate as the beneficiary. As for taking your RMD’s and funding a roth you cannot do that. You need to have earned income to fund an IRA. Pensions, passive income does not count. You can do rollovers to a roth though, if in your situation it makes sense.
If there are any discrepencies in who inherits the IRA, the beneficiary designations of a retirement plan take precedence over the beneficiary designations made in a will.
If anyone confirms my response, then you should get a second opinion from another attorney.
Permalink Submitted by Alan Spross on Sat, 2010-02-06 18:15
I agree with tardytango.
Unless there are other factors here you did not mention, this suggestion makes no sense whatsoever. After you incurred the huge tax bill, you will probably be presented with a plan for use of those bank account assets such as a non qualified annuity, life insurance, or even viaticals or other non standard investments.
Who is the beneficiary on your IRAs now? If it is your estate, that is a very bad idea if there are family members that you want to benefit from this IRA after your passing.
Determining whether a Roth conversion would be beneficial requires extensive analysis of your entire financial picture including your estate plans, and that is best done with the help of a financial planner.
Permalink Submitted by Janine Janine on Tue, 2010-02-09 21:47
The original poster needs to consult a new attorney ASAP. I have never seen such erroneous advice!
Permalink Submitted by Ann Taylor on Fri, 2010-02-12 03:56
Since reading your posts I have contacted this attorney again and he now states that he feels he may have not given me the correct info. His reason: his mother had died only a few days prior to our meeting and he probably should not have been working. He had troubles concentrating.
I did check about his mother and it was true about her death, however, it does make you wonder who else this guy gave the wrong advise too.
Thanks for the good advise from you guys.
Permalink Submitted by Alan Spross on Fri, 2010-02-12 04:27
Thanks for the update.
I just noticed another issue from your initial post. If you are subject to RMDs, you cannot roll over or convert any of that amount to a Roth IRA. You must take out your RMD first, and then if you want to convert other IRA amounts to a Roth IRA, you can. Whether you should convert anything to a Roth IRA is a complex decision and involves analysis of your entire financial picture. Some people are better of not converting, and if you are already retired, the decision should also address your estate plans.
Permalink Submitted by Janine Janine on Sat, 2010-02-13 21:38
dandj….
Regardless of your attorney’s unfortunate loss and the attendant grief and lack of concentration, he must be incompetent to have given such erroneous information. I would be very reluctant to have him handle [u][b]any[/b][/u] of my affairs.