Roth IRAs have wonderful benefits:  tax free growth and tax free distributions.  So, when you have the opportunity to convert assets from a traditional IRA to a Roth IRA, should you make the conversion? 

Here are some considerations that will help you to decide:

• Zero tax bracket:  If a full conversion or partial conversion can be offset by deductible losses (i.e. business losses, mortgage interest, student loan interest), the conversion makes sense because it is free.  No additional tax dollars will be assessed and you are converting assets that will be distributed with taxes due into assets that will be distributed without any taxes due.  Converting after tax traditional IRA assets would also be available at no cost.

• Higher future taxes:  Paying taxes today may make sense if you think income tax rates or, at least your personal income tax rate, will rise in the future.  You are also eliminating taxes on all future growth.

• No RMD:  If you won’t need the required minimum distributions from your traditional IRA, it may make sense to convert to a Roth IRA to take advantage of continuous tax free growth and tax free distributions for future generations.  Unlike the traditional IRA, the Roth IRA does not have required distributions.

• Asset protection: IRA and Roth IRA assets are protected from bankruptcy proceedings and lawsuits (i.e. malpractice claims.)  Assets outside the IRA can be used to pay the taxes on the conversion, thereby reducing non-protected assets and maintaining asset protected assets.

• Diversification:  Because the tax code is ever changing, it may be wise to divide your assets between non-retirement investments, traditional IRAs, and Roth IRAs.

If you have questions about retirement planning, traditional IRAs, Roth IRAs, and Roth conversion, be sure to consult with a qualified estate planning attorney.

Davidov Law Group is a member of the American Academy of Estate Planning Attorneys.

When you are planning for the more active segment of your retirement years through to the end of your life you have little choice but to proceed with a good bit of speculation. It is easy to be cavalier and talk about planning for all of the eventualities of aging as though it is a simple matter of moving numbers around. But depending on where you are in your life now, how your latter years unfold, and the extent to which medical and long term costs grow, the size of your numbers may not match the size of the costs you may face.

Though you don’t have control of future health care costs, and you have finite resources and earning capabilities, there is another factor that many people overlook. If you don’t get seriously ill or need long-term care, at least not until very late in your life, your expenses will be minimal. A person who is in and out of the hospital by the age of 65 is going to be in a much different financial situation than another who stays pretty healthy through her seventies and perhaps beyond. So if you are evaluating your financial ability to meet future medical costs, it is only logical to consider your relative health. Statistics on the subject of how much you can expect your costs to be by a certain age are averages and don’t really tell the true tale.

There are those who would go to almost any lengths to earn enough money to feel financially secure, but in the process they may be internalizing stress and living a lifestyle that is inviting illness and the costs that go with it. It is a good idea to recognize the fact that you can’t control health care costs and that you have no power over the insurance companies or government mandates. But you and you alone choose your lifestyle, and the right choices may provide you more dividends than you originally thought possible.

Davidov Law Group is a member of the American Academy of Estate Planning Attorneys.