Question:

I was wondering if anyone has done the analysis on whether it may possibly make sense to do a Roth Conversion and pay the taxes using the IRA funds (violating the cardinal rule of using non-IRA funds).

What if a 66 year old man had $2M in his IRA and wanted to do Roth conversions for, let’s say, $150,000 a year for 4 years – just looking to make a ‘dent’ in his IRA and create a modest Roth account.

He doesn’t have the money outside the IRA to pay the tax on the conversion so his $150k taxable distributions may only get him $105,000 (after tax) each year into the Roth. Conventional theory says there’s not enough time to make up the lost earnings on the prepaid tax – and I agree.

However, what is this person had a wife who was only 52? Both his IRA and (hypothetical) Roth IRA will become hers when he dies. Doesn’t the age of the wife suggest that there may, in fact, be sufficient time (given her life expectancy) to support the conversion tax getting paid with IRA funds? If not, would the answer change if she were even younger – say 42? What if they could afford to pay 10%-20% of the conversion tax with non-IRA funds?

This couple likely will only need to live on the husband’s RMD’s when he’s 70.5 (and beyond) and likely never have to touch the Roth he would be creating – even through the wife’s lifetime…….essentially making the Roth a legacy item for the 2 kids.

Just wondering if anyone has any insight on this theory…..

Thanks