How Far to Go with Roth Conversions?

Submitted by Robert Banta on Fri, 2018-01-05 22:33

Beginning in 2010, I have been strongly pursuing a program of making conversions from Traditional IRAs to Roth IRAs. However, there are published instances of calls in congress to discontinue some of these advantages by threatening to demand Required Distributions from Roth IRAs. Politics aside, how much of a threat is this?



Submitted by Alan - IRA critic on Sat, 2018-01-06 01:12

  • Hard to say, because politics are a major factor. Currently we have a situation where proposals made by one administration are shunned by a different administration, who then comes up with their own proposals. Once such as proposal is considered, the CBO has to estimate the tax cost or revenue effect over the next 10 years. For Roth RMDs, there would be no taxable income, just forfeiture of tax deferral into the future, so that would not raise much money in the 10 year window that could offset other cuts. Another recommendation floated by the prior administration was a mandatory 5 year rule for non spouse inherited IRAs. That would include both types of IRAs, and is more likely to pass than RMDs for Roth owners. But it is not possible to quantify any of this right now.
  • Given that Congress baited taxpayers into converting in 2010 by waiving the income limit and deferring the taxes for 2010 conversions into 2011 and 2012, there would be quite an uproar over requiring RMDS on owned Roths since RMD avoidance  was a major factor in all the conversions done in recent years. It would be a classic bait and switch and would be very unpopular to say the least.

Add new comment

Log in or register to post comments