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I am currently doing an IRA-Roth conversion of 130K (1/2 2010 and balance 2011) to bring my Roth up to 200K. It is going to cost me about 40K in Fed and State taxes to do the conversion. IRA RMDs will begin for me in 2012 and my RMDs will be smaller because of the $130K leaving the IRA.

Here is my thinking: My life expectancy is 85 years, leaving me another 15 years of life. I hope to grow the 200K in the Roth account during the remainder of my life. A 6% return for 15 years would grow the 200K in the Roth to $500,000. I am single with two children in their early forties. If I do not need the Roth money during my lifetime, and if I live to 85, and if I can get a 6% return, each of my children will inherit in their late fifties a $250K Roth account that they can utilize as a supplemental tax free pension.

I began my IRA as a Keogh in 1976. My total contributions were made 1976-1980 and amounted to $38,000. No contributions were made after 1980. Now I have $305K in that IRA which will be taxed as withdrawn or converted. The point is that I avoided paying taxes on $38K, but now I am going to have to pay taxes on $305K. Wish they had Roths back then and I was smart enough to contribute that $38K to one!

If the Roth grows to $500k from $200K no taxes are ever paid on the $300K gain because that gain is sheltered by the Roth. Granted, the old man kicked in $40K in taxes for the conversion and I guess you would have to consider the future value of that $40K. But after my death the Roth will continue to compound and the children's annual income grow. Now I hope that they don't cash out all at once to buy a Ferrari.
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