The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing

URL:  http://boards.fool.com/smart-tax-planning-122799-by-tmf-pixy-11763128.aspx

Subject:  Smart Tax Planning: 12/27/99 by TMF Pixy Date:  1/6/2000  4:30 PM
Author:  cabweb58 Number:  17439 of 76394

After reading subject article several times, I still have questions in my mind relating to the last paragraph of the article which concludes that conversion of a Traditional IRA to a Roth IRA is not beneficial.

It seems to me that conversion to a Roth AND paying the taxes due out of funds that are OUTSIDE the IRA, simply gives you a method to make a large contribution to the Roth, which will grow taxFREE, instead of tax deferred. (If taxes are paid by withdrawing additional funds out of the Trad. IRA, any advantage is lost.) In addition, the gross estate is reduced by the amount of the taxes paid. Funds remaing in the Trad. IRA until death are subject to estate tax and ALSO subject to income tax.

It also appears that using funds from the taxable account, particularly funds from dividends and interest, would be preferrable to withdrawing funds from the taxfree Roth. Assuming that the equity investments held in the account continue to grow and are not sold prior to death, any gains in them would also be income tax free. However, any change in the securities held would trigger capital gains taxes.

Please explain to me what is wrong with my logic for estates large enough to subject to significant estate taxes.




Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us