16 Jun I think tax rates will go up. Can I convert my IRA to a Roth?

Q. I am 74 years old with a regular IRA of about $800,000. At this point in my life, I have no earned income. Is there any way to convert to a Roth as I expect tax rates to increase in the future?
— Curious

A. The rules here are very specific.

An individual needs earned income in order to make a new IRA contribution, but this is not required to convert an existing traditional IRA to a Roth IRA.

“Any portion of the $800,000 IRA can be converted to a Roth IRA,” said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel. “The fair market value of the converted IRA on the date of conversion will result in taxable income in the year of conversion.”

The tax will need to be paid by April 15 of the following year, he said.

Becourtney said if you are correct in your prediction that tax rates will increase in the future, then you may end up benefiting from your conversion strategy.

But you still need to take into account the acceleration of the tax liability that will result from the conversion in determining whether this makes financial sense to pursue, he said.

Advisors generally say the best move is if you can pay the tax bill from non-IRA funds, rather than take more out of the IRA to cover the tax bill.

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This story was originally published on June 16, 2020.

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