“Would you rather?” was a game my kids loved to play: pizza or tacos, fly or be invisible? Let’s play it again, this time with tax and legacy planning questions.
Would you rather your heirs inherit a Traditional IRA or Roth IRA?
Most investors would answer Roth IRA and for good reason, because:
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- Roth IRAs grow tax-deferred and qualified distributions are tax-free.
- Non-spouse beneficiaries who inherit a Roth IRA don’t have to take distributions until the end of year 10 following the original owner’s death. Those distributions are still tax-free.
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Many retirees don’t have large Roth IRA balances, but they could. That’s where Roth conversions enter the conversation. Here’s the strategic question:
Would you rather pay taxes on your terms or let the IRS decide later?
A Roth conversion isn’t about chasing tax breaks; it’s about tax control.
For diligent savers with substantial balances in traditional tax-deferred retirement accounts, the concern is often whether future tax rates and Required Minimum Distributions (RMDs) will increase taxable income later in retirement.
When implemented over time, a Roth conversion strategy may:
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- Reduce future RMDs
- Lower lifetime and estate level tax exposure
- Increase flexibility in retirement income planning
- Help mitigate the impact of the “widow(er)’s penalty”
- Leave heirs assets that are simpler & potentially more valuable to inherit
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The right strategy depends on your tax brackets today, tomorrow, and years from now. Tax planning is not static. It’s annual decision which evolves as life changes. Which brings us to another important question…
Would you rather have a retirement plan that’s reactive or one designed for you?
Here’s a few things likely to change in retirement:
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- Tax laws
- Your investment and retirement account balances
- Your income, health, family, and priorities
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That’s why retirement and distribution planning isn’t a one-time decision. It’s an ongoing process that requires coordination, implementation, and monitoring over time. Success isn’t always measured by what you earn. It’s measured by what you keep, control, and can compound over time.
We help families move beyond surface-level planning by:
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- Understanding how today’s decisions affect tomorrow’s taxes
- Coordinating after-tax, pre-tax, and tax-free assets
- Evaluating when Roth conversions make sense, and when they don’t
- Aligning your portfolio with your evolving income needs and goals
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If this kind of thinking resonates, you’re already asking the right questions. We help provide the structure, plan, and ongoing guidance to optimize the answers. Contact us today if you’d like to discuss your situation in more detail or you have questions about this post.
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Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security. To learn more about our firm and investment approach, check out our Form ADV.
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