Convert Trad IRA at 91 years old to Roth?

[bigguy8437]

My grandmother has about a $1.8M Traditional IRA where she is required to take RMD’s annually. She is 91 years old, has no debt and also has an estate valued at around $18M or so. This past year she took out the required amount which was approximately $200K. Would there be any benefit to her to convert this into a Roth or do any type of back door..? She has such a large RMD for her age so I just want to make sure she’s not missing out on any benefit or anything.

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

[celia]

You can’t convert an RMD. It must go to a Taxable account (and have taxes paid on it) or be given directly to a qualified charity by making a Qualified Charitable Distribution (QCD) (which will be tax-free). The QCD can include all/ part of the RMD. Only after the amount of the RMD is removed from the tIRA can they convert later withdrawals in the same year to a Roth (and pay taxes on every dollar converted).

Learn about QCDs here:
https://www.bogleheads.org/wiki/Qualifi ... tributions

[Carl53]

Not sure in her case if would matter much. That said, after she takes her RMD she could convert some. It would reduce the RMD for the next year from what it would have been.

[8301]

A 91 year old grandmother with an estate of $18 millions. An RMD of $200 K from a tIRA of $1.8 million.
An inherited IRA has to be emptied by the end of 10 years. If her life expectancy is less than 10 years, I hope not, I cannot think of much benefit of Roth conversion if she is still in the highest tax bracket without RMD. The details depend on the income generated by the rest of her asset.

[HomeStretch]

If your grandmother’s Estate will be subject to Federal/state Estate taxes, it’s possible that Roth conversions might be helpful to reduce such taxes. But a much more detailed analysis would need to be done that takes into account, among other things, her heirs (and possibly their heirs) marginal tax rates.

It’s also possible funding a Trust in her lifetime that removes some/all $ from her Estate could reduce Estate taxes, if applicable.

Gifting to heirs now (below the threshold that requires a gift tax return) would also reduce her Estate subject to estate tax.

As mentioned already, RMDs cannot be converted to Roth.

[niagara_guy]

If your grandmother is inclined to make charitable contributions then I would recommend Qualified Charitable Distributions (QCDs), which can be up to $100k per year and will reduce RMDs dollar for dollar if done correctly.

https://www.bogleheads.org/wiki/Qualifi ... tributions

I used 2021 tax software to model my 2022 taxes in late 2022, then converted some dollars to Roth using the data from the model to minimize my taxes. (If she converts a large amount to Roth then she will be in a higher tax bracket.)

https://www.bogleheads.org/wiki/Roth_IRA_conversion

with the size of her net worth I would be getting help from a tax advisor and an estate planner.

I would also post questions here to get advice.

[neurosphere]

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

If I had $5M and one $9k IRA I would either convert the IRA to Roth (if I already had an existing Roth IRA) or cash out the IRA and pay the tax. I would do this simply to get rid of a "nuisance" account. The tax will have to be paid eventually anyway.

[tibbitts]

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

If I had $5M and one $9k IRA I would either convert the IRA to Roth (if I already had an existing Roth IRA) or cash out the IRA and pay the tax. I would do this simply to get rid of a "nuisance" account. The tax will have to be paid eventually anyway.

Absolutely agree; it would be a win just to not have to deal with the $9k account.

[tadamsmar]

My grandmother has about a $1.8M Traditional IRA where she is required to take RMD’s annually. She is 91 years old, has no debt and also has an estate valued at around $18M or so. This past year she took out the required amount which was approximately $200K. Would there be any benefit to her to convert this into a Roth or do any type of back door..? She has such a large RMD for her age so I just want to make sure she’s not missing out on any benefit or anything.

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

The RMDs cannot be converted. It would have be Roth conversions on top of that.

You would have to look at future contingencies, future tax rates for various contingencies.

What is her AGI for federal taxes? What are the state tax brackets? Does she have Medicare part B or just basic Medicare?

Would her heirs have a lower or higher tax bracket?

Might she end up living in a different state?

It would probably be relatively small potatoes and there would be multiple scenarios and it might be a money loser in some scenarios.

[BL]

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

If I had $5M and one $9k IRA I would either convert the IRA to Roth (if I already had an existing Roth IRA) or cash out the IRA and pay the tax. I would do this simply to get rid of a "nuisance" account. The tax will have to be paid eventually anyway.

Absolutely agree; it would be a win just to not have to deal with the $9k account.

I had a small trad. IRA and used QCD to give to charities to get rid of the "nuisance", even without the huge portfolio. You pay no tax on any amount up to 100k/year of QCDs and the charities don't pay tax on it either. Earlier we converted to Roth IRA to the top of our tax bracket; then the QCDs came along so we took advantage of that instead. Now it is simplified for both tax reporting and for our heirs.

For the grandmother, I probably would leave it alone. She may not benefit from it, and unless she really wants to do this, I would hesitate to change something that doesn't really need changing. Possibly an estate lawyer could make suggestions on how to lower estate value, but other than giving $17,000/year to many relatives and/or giving to charity, it may be too late for much change.

[ModifiedDuration]

She needs to talk to an estate lawyer.

Right now, if no action is taken, the estate would have a bill of about $2 million ($18 million less $13 million exemption times 40% tax rate), unless a portability election had been made on her spouse.

Also, the estate tax on a $18 million estate will be a lot higher starting in January 1, 2026 under current law, as the estate tax exemption is scheduled to drop significantly.

[tibbitts]

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

If I had $5M and one $9k IRA I would either convert the IRA to Roth (if I already had an existing Roth IRA) or cash out the IRA and pay the tax. I would do this simply to get rid of a "nuisance" account. The tax will have to be paid eventually anyway.

Absolutely agree; it would be a win just to not have to deal with the $9k account.

I had a small trad. IRA and used QCD to give to charities to get rid of the "nuisance", even without the huge portfolio. You pay no tax on any amount up to 100k/year of QCDs and the charities don't pay tax on it either. Earlier we converted to Roth IRA to the top of our tax bracket; then the QCDs came along so we took advantage of that instead. Now it is simplified for both tax reporting and for our heirs.

For the grandmother, I probably would leave it alone. She may not benefit from it, and unless she really wants to do this, I would hesitate to change something that doesn't really need changing. Possibly an estate lawyer could make suggestions on how to lower estate value, but other than giving $17,000/year to many relatives and/or giving to charity, it may be too late for much change.

We may be getting confused between the two scenarios being discussed. I'm just saying for the uncle, get rid of the $9k account; how that happens doesn't matter.

[JayB]

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either?

Yes, it looks worthwhile to close out that IRA by first doing the 2023 RMD (required, and good to do very early in the year for elderly folks who may not live the entire year), and then converting the rest to a Roth IRA. That will make things simpler for an executor and prevent beneficiaries from inheriting nuisance-sized IRAs. I recently did something similar with a small IRA held by my 102 year old dad.

[BL]

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

If I had $5M and one $9k IRA I would either convert the IRA to Roth (if I already had an existing Roth IRA) or cash out the IRA and pay the tax. I would do this simply to get rid of a "nuisance" account. The tax will have to be paid eventually anyway.

Absolutely agree; it would be a win just to not have to deal with the $9k account.

I had a small trad. IRA and used QCD to give to charities to get rid of the "nuisance", even without the huge portfolio. You pay no tax on any amount up to 100k/year of QCDs and the charities don't pay tax on it either. Earlier we converted to Roth IRA to the top of our tax bracket; then the QCDs came along so we took advantage of that instead. Now it is simplified for both tax reporting and for our heirs.

For the grandmother, I probably would leave it alone. She may not benefit from it, and unless she really wants to do this, I would hesitate to change something that doesn't really need changing. Possibly an estate lawyer could make suggestions on how to lower estate value, but other than giving $17,000/year to many relatives and/or giving to charity, it may be too late for much change.

We may be getting confused between the two scenarios being discussed. I'm just saying for the uncle, get rid of the $9k account; how that happens doesn't matter.

I agree that getting rid of the uncle's $9k account makes sense.

The grandmother's account is more complicated. She is very old, it is very large so could be costly to get rid of it, she doesn't have so much time left to benefit for herself, and even with a POA, OP could be challenged as to whether it is a suitable move.

[dmcmahon]

With an estate of that size she should consult a tax adviser. The $18 million is going to mean some estate tax will likely be due. Anything you can do to reduce that will help. One oddball thought is that by taking the IRA out at higher than the RMD, and paying income tax on the distributions, will reduce the net amount subject to the estate tax. She might consider this up to the limit of whatever tax bracket she's in, which is hard to judge from what you've stated.

I'm sorry to say that the Roth conversion idea was something for her to consider 10-20 years ago. She could have chipped away at the $1.8 million (or whatever it was worth at the time), converting to Roth and paying the tax along the way. This would allow her to leave the Roth as a unique asset to someone who could hold it for the entire 10 year period allowed by law. All else being equal, it's better to inherit $1.8 million that has tax-free earnings for 10 years than to inherit $1.8 million with no such benefit. I don't see much benefit to her from Roth conversion at her age - it's a strategy of interest to someone trying to leave a legacy.

At 91, she may not have enough years left to do a gradual conversion. Converting it all in one go, in a single year, meaning jumping straight into the highest tax bracket with a $1.8 million income in that year. That said, if she's already in the highest tax bracket, this may be a nothing burger to her. That is to say, if she's already facing the fact that every dollar of RMD is going to be hit with the highest tax rates, then converting the entire thing into a Roth in one go may make sense. It creates the legacy asset and reduces the taxable estate by the amount of the tax she'll pay.

As I said earlier, these are just ideas, I am not a tax expert or financial adviser. With $18 million at stake, she can afford to hire an excellent professional.

[Navillus1968]

My grandmother has about a $1.8M Traditional IRA where she is required to take RMD’s annually. She is 91 years old, has no debt and also has an estate valued at around $18M or so. This past year she took out the required amount which was approximately $200K. Would there be any benefit to her to convert this into a Roth or do any type of back door..? She has such a large RMD for her age so I just want to make sure she’s not missing out on any benefit or anything.

Similar question to my uncle who has a traditional IRA but its only 9k or so. I have no idea how he has it. It’s such a small amount, should he convert that to anything either? He has a $5M nest egg, has no debt and is retired recently as a of a few years ago. He has a brokerage and Roth which make up most of his net worth.

Talking about Roth conversions of Grandma's $1.8 million TIRA when her estate is worth $18 million is like putting a band-aid on a skinned knee while ignoring a gushing femoral artery bleed!

You haven't mentioned whether Grandma has a trust set up to hide money from the tax man, but without one, she is facing estate taxes of at least $2 million if she dies in 2025 or before ($18m-$13m exemption= $5M taxed at 40%= $2M taxes) or about $4.5 million if she dies in 2026 or later ($18m-$6.8m exemption= $11.2M taxed at 40%= $4.5M taxes). Obviously, these future tax bills are larger than her entire TIRA, so the Roth conversion tax savings are small in comparison!

All this is not to say Roth conversions don't potentially make sense, but they are probably not the priority compared to addressing Grandma's estate tax vulnerability.
One potential solution- If Grandpa died in 2018 or later & his entire estate passed to Grandma, you can port over to Grandma the deceased spouse unused exclusion amount (DSUEA, in IRS-speak) from Grandpa's estate, potentially sheltering millions extra from estate taxes. You need to ask if this was done, portability has been available since 2010.

Whether Roth conversions make sense is based on Grandma's marginal tax bracket today compared to her heir(s)' tax bracket(s) when they inherit. Are your parents the IRA beneficiaries? Are you? Grandma has ~$14 million of taxable assets outside the TIRA- are substantial dividends & cap gains involved or not? If her MAGI is already high without adding Roth conversions, the less attractive it is to convert.

As a Single filer, her $200k RMD + Social Security of ~$25k puts her well into the 32% bracket, plus whatever state taxes she owes. Unless her heirs are making even bigger bucks or she wants to do a favor for them, Roth conversions don't seem wise.

Bottom line- You need to take Grandma ASAP to an estate planning expert, who can outline the options available to minimize/mitigate her looming estate tax issues. He should be able to calculate whether Roth conversions make sense, as well, once her sees her 1040.

[bigguy8437]

Thanks for everyone’s replies. It sounds like a conversion does not make any sense. And yes in her estate return she has elected portability. Her estate is also being transferred into a revocable trust at death to her three children which will also help to avoid estate tax.

[bsteiner]

Thanks for everyone’s replies. It sounds like a conversion does not make any sense. And yes in her estate return she has elected portability. Her estate is also being transferred into a revocable trust at death to her three children which will also help to avoid estate tax.

She can't have already elected portability on her estate tax return if she's still living. Estate tax returns are filed after a person dies. The executors elect portability.

Revocable trusts don't save or cost estate taxes.

They could provide for their children in separate trusts rather than outright, to keep the children's inheritances out of their estates for estate tax purposes (and to protect their inheritances from their creditors and spouses).

There are several reasons that Roth conversions may make sense, though without more information we can't be sure:

1. If she's in a state that has a state estate tax, her beneficiaries will get an income tax deduction for the Federal estate tax on the IRA. However, that deduction only covers the Federal, but not the estate, estate tax. A Roth conversion avoids that, since it removes the income tax from the estate. It would help to know in what state she's in (and in what states here children are in).

2. If she provides for her children in trust rather than outright, the children's trusts will pay income tax at the top rate. So (with the possible exception of state income taxes) the tax rate on the conversion won't be higher than the tax rate on the post-death distributions.

3. A Roth IRA is a more valuable asset to allocate GST exemption to.

[bigguy8437]

Thanks for everyone’s replies. It sounds like a conversion does not make any sense. And yes in her estate return she has elected portability. Her estate is also being transferred into a revocable trust at death to her three children which will also help to avoid estate tax.

She can't have already elected portability on her estate tax return if she's still living. Estate tax returns are filed after a person dies. The executors elect portability.

Revocable trusts don't save or cost estate taxes.

They could provide for their children in separate trusts rather than outright, to keep the children's inheritances out of their estates for estate tax purposes (and to protect their inheritances from their creditors and spouses).

There are several reasons that Roth conversions may make sense, though without more information we can't be sure:

1. If she's in a state that has a state estate tax, her beneficiaries will get an income tax deduction for the Federal estate tax on the IRA. However, that deduction only covers the Federal, but not the estate, estate tax. A Roth conversion avoids that, since it removes the income tax from the estate. It would help to know in what state she's in (and in what states here children are in).

2. If she provides for her children in trust rather than outright, the children's trusts will pay income tax at the top rate. So (with the possible exception of state income taxes) the tax rate on the conversion won't be higher than the tax rate on the post-death distributions.

3. A Roth IRA is a more valuable asset to allocate GST exemption to.

Sorry to be more clear, I meant portability was elected in her husbands estate return. She is a resident of FL and also her 3 children are residents of FL as well. I also think she is providing for her children in trust rather than at will.