Should mom convert her IRA so we save on taxes?


Q. Myself and my two sisters are in line to inherit my mom’s IRA. We’ll split the inheritance three ways. She currently has $900,000 in a traditional IRA and I’m wondering if it is better for her to convert it to a Roth IRA so my sisters and myself will be able to live off the Roth IRA with tax-free withdrawals for living expenses. Is that a better deal for us three children? I’m thinking if it costs 20% in taxes to convert the IRA to a Roth, that would cost $180,000 and she would pass us a $720,000 Roth IRA, or $240,000 to each child. If it remains a traditional IRA, the three children would get $300,000 each and at age 72.5, we’d have to make RMDs and pay taxes on them. What do you think?
— Future beneficiary

A. Yours is a great question.

The real answer is that it depends.

First, though, we need to clarify what happens when you eventually inherit the account.

As children of the deceased, you would inherit the traditional IRA or Roth IRA and need to take distributions over a 10-year period beginning at the time of death, said Jody D’Agostini, a certified financial planner with Equitable Advisors/The Falcon Financial Group in Morristown.

If it is in a traditional IRA, it would all be taxed at ordinary income tax rates, she said.

“If you take it in 10 equal increments, it’s $30,000 year for 10 years, which depending upon your individual tax brackets may or may not be costly to you,” she said. “If this converts to a Roth IRA, you will begin to take your estimated $240,000 each over 10 years as well, but this would be tax-free for $24,000 a year.”

It’s also important to note that you don’t have to take the withdrawals in equal amounts each year, but instead you can take it however you want as long as the account is depleted at the end of the 10 years.

Now, if your mother converts the entire IRA in one year, she would likely lose close to half of it to taxes, D’Agostini said. Again, the entire $900,000 would be fully taxable at ordinary income tax rates.

“She would be in the highest federal tax bracket and close to the highest New Jersey income tax rates, losing likely well over 40% to taxes,” D’Agostini said. “This would severely affect the account balance. She could alternatively decide to convert some over a period of years to lessen the tax impact or elect to convert a portion and leave a portion, giving you some tax-free income and some taxed at ordinary rates. This might be a good compromise.”

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This story was originally published on May 21, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.