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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: IRA RMDs and Roth conversions Date: 12/21/2010 7:55 PM
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If I don't convert, I take RMDs on the $130K, earn 6% taxable on the account, reinvest the after tax RMDs in taxable investments @6%, live to be 85, and leave the balance of the IRA and the after tax RMD money to my kids, what will they inherit and what tax consequences will ensue for them?

I think that when you inherit a stock or mutual fund, your cost basis for the invested shares is the price on the date of death. If that's correct, it's almost better than a Roth because there are no restrictions on withdrawal.

I had thought that if I made the $130K conversion in 2010 the tax would be computed on $130K payable over two years. That would put me into the 28% bracket. But being able to report $62.5 in 2011 and again in 2012 will put more of the conversion into the 15% and 25% brackets. And spreading the tax out over 8 quarters helps.

What's the rush? Why not spread it out over several years so you don't pay any 25% tax?

I agree that shifting the IRA into a Roth is a good idea, but I see no benefit to paying 25% to do so. Your kids will inherit more money if you take your time and keep the taxes at 15%.

A $500,000 inheritance compounding tax free and delivering tax free income is an awesome thing.

I totally agree, but the same inheritance plus another $10k compounded from taxes saved would be even better.

-murray
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