Tax law changes that bode well for doing Roth IRA conversions include:
- Tax rates are lower compared to last year, with a doubled standard deduction and lower rates, which makes a Roth conversion less onerous in terms of paying tax on the money when it is moved from a traditional IRA into a Roth account.
- Roth IRAs will now be free of estate taxes for most clients, now that the law has increased estate tax exemptions to $11.2 million per person.
- Since the gift tax exemption has also been increased to $11.2 million, it is easier to gift funds to younger family members to begin their own Roth IRA accounts, or to help the older generation pay the tax on their own Roth conversions.
- The new tax law raised the bar for generation-skipping transfer taxes, freeing more Roth IRA funds to be passed tax free to younger relatives.
At Geyer Law we offer neither tax nor investment advice, but we believe Roth IRAs definitely deserve a place in estate planning discussions for a variety of important reasons:
- Earnings in a Roth IRA are tax free.
- You may be able to contribute to a Roth even if you have a 401(k) or 403(b) account.
- Withdrawals are never required.
- After age 59 ½, you do not pay tax on “qualified withdrawals” (the account was opened more than five years ago or the balance is being paid to a beneficiary after your death).
- Having a Roth IRA allows you to offer some tax planning advantages to your beneficiaries as well as to benefit certain ones outside of your will and trust.
- Your beneficiaries will not pay any income tax on the distributions.
- Your beneficiaries have the choice of rolling over the money into an inherited Roth IRA, where the assets would continue to grow non-taxed (distributions are required based on the oldest beneficiary’s life expectancy).