How a Roth Conversion Affects Your Heirs

The second key conversion issue: the conversion tax must be paid from some other source, so that the entire TIRA can be moved into the Roth. This is so whether you’re converting for yourself or to benefit an heir.

Estate taxes create another wrinkle. If your estate will be large enough to face an estate tax, money spent on a conversion tax would be removed from your estate, reducing the estate tax. Estate-tax rates have generally been higher than income-tax rates and converting would therefore subject you to a lower tax.

Unfortunately, the estate-tax issue is up in the air. There is no estate tax this year, but old rules may return in 2011, unless Congress comes up with something new. The best you can do is to keep abreast of the issue and then try to factor any new rules into your Roth conversion decision.

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