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Roth conversions: Divide & conquer

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in Small Business Tax Deduction Strategies

Are you finally pulling the trigger on a Roth conversion? You might want to take more than one shot.

Strategy: Set up multiple Roth accounts. Typically, you should divide things up based on asset classes, instead of sinking the entire boatload into a single Roth IRA.

The reasoning is simple: If you later decide to recharacterize Roth funds (i.e., undo the conversion), you’ll have greater protection by using multiple Roth accounts. That way, you don’t have to recharacterize the whole kit and caboodle.

Here’s the whole story: Qualified distributions from a Roth in existence for at least five years are 100% federal-income-tax free. A “qualified distribution” is one that is made after age 59½, or on account of death or disability or used for first-time homebuyer expenses (up to a lifetime limit of $10,000).

In addition, the rules for required minimum distributions (RMDs) don’t apply to a Roth IRA during your lifetime. Normally, ...(register to read more)

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{ 1 comment… read it below or add one }

Donald Paukett May 9, 2016 at 11:57 am

I am working on Financial planning issues for mid income employees.

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