The results are in from no less than the IRS themselves. It seems taxpayers have investigated and found the Roth IRA to be an excellent tool for both retirement and estate planning.
As reported in Bloomberg on the day of the IRS announcement, conversions from traditional to Roth IRAs increased by nine times in 2010. That was the first year of new laws surrounding the tool, pulling in over 10% of all millionaires with it.
Indeed, these numbers mean a Roth IRA is food for thought, especially if you have yet to crunch the numbers for yourself in Overland Park or elsewhere.
For a bit of the history behind the IRS data have a look at the original Bloomberg article titled “Tax Break for IRA Conversion Lured 10% of Millionaires.”
Roth IRAs are just another IRA in that it is an account earmarked for retirement account. Interestingly, Roth IRAs work backwards by taxing at the time of deposit rather than at the time of withdrawal.
That timing is the crucial difference.
In addition, since there is no deferred tax then there is no corresponding rush by the IRS to get you to access the account so they can tax it. As a result, there are no required minimum withdrawals for either you or your beneficiary. This makes it a useful retirement account to have at the ready and an incredibly convenient wealth transfer tool too!
With proper balancing there is much good to be found in Roth IRA account as part of your overall plan. While the law still allows, many can convert their traditional IRAs by paying the taxes due on those funds today, to secure both the remaining principal and all future appreciation tax-free.
One important insight from this article in particular, however, is a bit of hesitation over the future of the tool and the tax revenues to be gleaned by the federal government. The 10 year study conducted to support the law found increased revenues, which could only be expected since conversion means paying taxes today so you do not have to pay them 10 (or 50) years from now.
What will happen in the future when there is no tax being paid on the appreciation? How will the Roth IRA fare then? Will the IRS try to find a way to tap into this retirement and wealth transfer tool at some point?
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Bloomberg (January 3, 2013) “Tax Break for IRA Conversion Lured 10% of Millionaires”