The Roth IRA For Many Is A Staple to Effective Retirement Planning…
1. Taxpapers that have favorable tax features, such as a high basis ratio, charitable deduction carry-forwards, investment tax credit, etc. This is because these attributed reduce the effective tax rate of the conversion.
2. Suspension of the minimum distribution rules at age 72 provides a substantial advantage to the Roth IRA Holder. This allows for an additional tax-free deferral.
3. Taxpayers benefit from paying income tax before estate tax (when a Roth IRA election is made) compared to the income tax deduction obtained, when a traditional IRA is subject to estate tax. This is because the IRC § 691(c) deduction is inefficient.
4. Taxpayers who can pay the income tax on the IRA from non IRA funds benefit from the Roth IRA. This is due to the ability to enjoy greater tax-free yields. This is because of the ability to move funds from a “taxable” to a “tax-free” tax asset class.
5. Taxpayers who need to use IRA assets to fund their Unified Credit bypass trust, are well advised to consider making a Roth IRA election for that portion of their overall IRA funds. This is because the exemption is funded on an after-tax basis.
6. Taxpayers making the Roth IRA election during their lifetime reduce their overall estate, which lowers the effect of higher estate tax rates.
7. Because federal tax brackets are more favorable for married couples filing joint returns than for single individuals, Roth IRA distributions won’t cause an increase in tax rates for the surviving spouse when one spouse is deceased. This is because the distributions are tax-free.
8. Post-death distributions to beneficiaries are tax-free. This is possibly the most advantageous aspect of a Roth IRA conversion.
9. Tax rates could increase in the future. Higher tax rates in the future means more tax will be paid on taxable IRA distributions than the tax that would be paid on a conversion at a lower rate.
10. By converting traditional IRA’s to a Roth this can have a positive effect on your future tax rates. By lowering your RMD’s after age 72, it can reduce not only your overall taxes, but also it may reduce your tax on Social Security, as well as your Medicare surtax.
In Summary…
Making use of these strategies allows you to leverage the most out of your IRA from a tax, benefits, and exemption standpoint which boosts the efficiency of your overall portfolio.