Your Kids Can't Convert Your IRA to a Roth

It’s true, and in this episode of Protecting and Preserving Wealth, we focus on this crucial aspect of estate planning: converting your IRA to a Roth IRA before passing it to your children.  We discuss the importance of making this conversion while you're alive because your children cannot convert an inherited IRA to a Roth IRA after your death.  I will share an example of a client who could have benefitted from starting the conversion process earlier, explaining that even partial conversions would allow beneficiaries to enjoy tax-free growth from a Roth IRA.

Our conversation delves into the details of Roth's conversions, highlighting people's common misconceptions.  Alex notes that there are no age or income restrictions on who can convert their IRA to a Roth.  Even wealthy individuals like Bill Gates could convert if they wished.  We discuss how spouses can inherit Roth IRAs with no required minimum distributions (RMDs), which allows them to let the account grow tax-free for the rest of their lives.  Upon the spouse's death, the Roth IRA can pass to the children, who must distribute it within ten years, but still tax-free.

I  break down the changes brought by the SECURE Act, which eliminated the "Stretch IRA" rule for most non-spousal beneficiaries, including adult children.  Instead, inherited IRAs must now be fully distributed within ten years, which can create significant tax implications.  I stress the importance of eligible designated beneficiaries—such as spouses, minor children, and disabled individuals — only they can stretch the IRA distributions over their lifetimes.

The key takeaway is simple: if you want your children to benefit from tax-free growth, you must convert your IRA to a Roth yourself.  This will empower you with the sole responsibility to secure your children's financial future.  Otherwise, they will be burdened with a traditional IRA and its tax obligations.  With tax rates potentially rising in the future, converting now at lower rates could save your heirs from paying much higher taxes later.  The message is clear: plan early and wisely to preserve wealth for future generations, providing a sense of relief and security.

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit them online at https://www.hoslerwm.com/

Or call them in their Prescott office at [phone] or their Scottsdale office at [phone].

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