Kitces: When NOT to Convert a Roth

Michael Kitces compares and contrasts traditional and Roth IRAs in “When NOT to Convert a Roth.”  His article begins:


The tax-free nature of growth on a Roth IRA makes it a highly appealing investment account to hold, and a similarly appealing type of account to inherit. All else being equal, it’s clearly better to be the beneficiary of an account that will never be taxed than of one that will be taxed over time.

Yet there’s a caveat. A client who leaves a Roth IRA as an asset to inherit will have paid taxes to get money into the account — either through systematic after-tax Roth contributions spanning many years or through Roth conversions. Which means the benefit of inheriting a Roth IRA is actually more nuanced. If the original IRA owner has paid too much in taxes to create the Roth, the beneficiaries might be better off inheriting a traditional IRA and paying the taxes themselves.

Read full article at Kitces: When NOT to Convert a Roth | Financial Planning.


Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

One Reply to “Kitces: When NOT to Convert a Roth”

  1. The article leaves out a key analysis. If a Roth of One million dollars, as per example passes, wouldn’t you want to analyze the tax free accumulation going forward if beneficiary does not need to make withdrawals for a period of years, the tax free growth on the million needs to be factored in along with the tax savings on withdrawals going forward. If you are examining overall family wealth the tax free growth potential of a million dollars is huge. At a conservative 6% growth rate it would take 9 years to recover the tax hit of the conversion. If beneficiary can survive with only spending the after tax portion of her inheritance of over 500,000. in ten years she is ahead of the game. and so is the next generation.

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