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Subject:  Re: 401(k) to IRA rollover question Date:  7/10/1999  9:44 AM
Author:  TMFPixy Number:  11886 of 88536

Eric sez:

<<An excellent analysis. Yes, it does matter how you take the money. It also matters when you take it. To expand on my earlier post's remark about estate tax effects: with a traditional IRA, you MUST take the money--you can't leave it beyond your actuarial lifetime. And if you're rude enough to die before your time and have a sizable chunk of money left in that IRA, your heirs get bit big by Uncle Sugar's estate taxes. With a Roth, you don't ever have to take it out (and with your $1M outcome, you should be able to live on $50K/yr withdrawals while your Roth actually continues to grow forever--run the numbers on that one--assume you live to 90 (actuarially, you'd be dead by then, and so would have had to have taken all of your traditional IRA by then) and see what the pile works out to). Still a large chunk of estate taxes, but off a much bigger pile, and (Pixy will correct me/fill in the details), Roths get (so far) better estate treatment than traditional IRAs. Leaves more money behind for your heirs.>>

No need for me to add anything except to say that those with a large, potentially taxable estate should definitely look at the mandatory distribution issue plus the problem of how much ultimately will go to heirs. Converting large traditional IRAs to Roth IRAs can make sense. It's really a choice of the owner paying income taxes during life or the heirs doing so afterwards. Paying income taxes in life may reduce estate taxes because it will probably reduce the assets left behind (these can't be avoided), plus it allow sthe remainder to grow and pass income tax-free to heirs. The ultimate result is the total tax burden (income and estate) can be reduced substantially. It's definitely an area that needs to be examined and analysed in detail.

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