Entrust Learning Center > Keyword: investments > Converting to Roth IRA

Converting to Roth IRA

Recently, two of our clients convert their traditional IRAs to Roth IRAs for some rather creative reasons. First, both clients anticipate their Adjusted Gross Income this year for conversion purposes to be less than $100,000. This will allow them to conv

By: Jack Kiley

IRA Insights

The first client converted $145,000 from traditional IRA to a Roth IRA. She then bought six lots surrounding a mountain lake. When she retires (more than 20 years from now), she intends sell off some of the lots and to build a house on one of the lots. She will then distribute out the completed home to live in - tax-free.

The other client is an elderly gentleman (age 77). His IRA was worth approximately $250,000, and he was in the process of taking required minimum distributions. Ordinarily, he would not seem to fit the profile of someone who would want to convert to Roth (and pay the tax at his age!), but he had another reason. One of his grandchildren has special needs and he saw this as a way to provide the grandchild with tax-free income. After he passes, the IRA would go to his beneficiary (the grandchild) and distributions would be made based on the child's life expectancy (she is currently 12). Based on her life expectancy, the Roth IRA would distribute well over $1.5 million assuming an 8% average rate of return and still have funds leftover. Not a bad bequest!

Converting from a traditional IRA to a Roth IRA is complex and many issues must be considered. Before completing the conversion process, you should consult your tax advisor.

Jack Kiley, CPA - Partner, Entrust MidAtlantic, LLC jack.kiley@entrustmidatlantic.com

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