16 Sep I don’t need my IRA distributions. What next?

Q. I take Required Minimum Distributions every year but I don’t need the money. How can I decide if I should convert the IRA?
— Retired

A. You could be a candidate for a Roth conversion, but it will depend on several issues.

First, it’s good that you’re taking the distribution each year because avoiding it is very costly.

Next, know a Roth IRA conversion could make sense if the tax you would pay on the conversion is lower than the tax you will pay on the distributions in the future it’s not converted, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

The strategy of converting to a Roth IRA for beneficiaries may become even more attractive because Congress is currently considering making changes to the ability for beneficiaries to stretch required minimum distributions from inherited retirement plans such as IRAs and Roth IRAs over their lifetime, Hook said.

“Currently beneficiaries who inherit can stretch distributions over their remaining life expectancy,” Hook said. “The House has passed a bill called the SECURE Act which would require most non-spouse beneficiaries of an IRA to take the entire inherited retirement plan within 10 years. The rule applies to Roth IRAs as well.”

You can read more about that here. 

He said the Senate is working on a bill that would require account balances to be withdrawn within five years.

If tax law changes and these limitations are put in place, beginning in January 2020, then the amount of tax that beneficiaries are going to pay is likely going to be greater than if distributions could be stretched over the lifetime of the beneficiaries, Hook said.

“Converting to a Roth IRA can help save beneficiaries save a lot of tax,” he said. “Note the proposed law changes do not apply to spouses who can still roll over inherited IRAs and take required distributions over their own life expectancy.”

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This story was originally published Sept. 16, 2019.

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