Converting IRA to Roth at age 82
Is it possible for my mother aged 82, holding 3 IRA accounts and 1 Keogh ranging from $23,000 to $45,000 each, to convert any or all retirement accounts mentioned to Roth IRA accounts? Obviously, she has been taking required distributions for several years. Also, she has no annual earned income only passive income and social security each year. If conversion is possible, would she be able to discontinue her annual required distributions?
Permalink Submitted by Alan Spross on Tue, 2010-12-07 23:15
Yes, this is certainly possible, although no way to know whether the plan is sound.
She must first satisfy her current RMDs before converting. But if the entire balances are then converted, there is no longer an RMD requirement for future years.
Permalink Submitted by Ilene Plave on Wed, 2010-12-08 03:43
My 82 year old mom does not need the approximately $7000 that she gets annually from her 4 required Traditional IRA distributions to live on. She has considerable other savings and will probably leave assets when she passes. Wouldn’t it be wiser for her to leave (in her estate) the 4 retirement accounts converted to Roth IRAs to her children/grandchildren than other cash assets that don’t have the same long term tax advantages? Her tax rate is approximately 25% and would be bumped up a little if we had her pay the taxes on the conversion over 2 years. Would the long term benefits justify the conversion? The approximate value of the 4 accounts is $117,000.
Permalink Submitted by Alan Spross on Wed, 2010-12-08 04:24
It would definitely benefit the beneficiaries to inherit a Roth vrs a TIRA, but with limited information there is no way to tell if there is any risk that the Roth funds would need to be tapped.
Obviously, elderly people have the potential liability for long term care or nursing home expenses, which are now around 12k per month in the most expensive states. The advisability of converting is affected by whether she has long term care insurance or not. For example, if she ever incurred large uninsured expenses such as nursing home costs, she could distribute the TIRA at no cost because the tax deduction for these expenses would offset the distribution income. It would be better for her to draw on the TIRA rather than after tax money or certainly a Roth had she converted. If she used the TIRA, beneficiaries would then inherit after tax savings provided there were some left. But if she converted to a Roth, then she would be out the tax money to convert and that would come from her after tax savings, possibly forcing her to eventually tap the Roth. In summary, her risk for LTC expenses and/or insurance is a large factor in determining whether she should convert.
And it may not be an all or nothing choice. If the situation is a toss up, she might convert half and leave the other half in the TIRA. Doing that, perhaps her tax rate on the portion converted would not exceed the 25% bracket. Being in the 25% bracket I assume that 85% of her SS income is included in AGI.
Permalink Submitted by Bruce Steiner on Wed, 2010-12-08 23:12
We’re doing a Roth conversion for a client who is 89.