8 Tax Saving Tips For Estate Planning and Roth Conversions

Hey there. Welcome back to the channel. I have a, I think a really different topic that I want to talk about. You don't hear Roth conversions and estate planning typically in the same conversation, but I've got eight tips for you for doing Roth conversions and how it can maybe have a positive impact on your estate planning. First, for those of you that maybe this is the first video that you're watching or you haven't been around the channel a whole lot, we've been at this Roth conversion specialty for about 15 years. And as always, this channel education is not designed to lead you to buy financial products from us or to turn over your investments for us to manage. We only provide tax strategy and comprehensive financial planning advice through a very large team of seasoned certified financial planners. We don't get into the product sale or investment world at all any longer. So this is all about how do we give you the right education to where you make best decisions for you. So the format I've got for you, they've got eight tips and, and I've got kind of a, just a real quick strategy idea that you can bounce off maybe your other advisors or if we can help you with that, we're happy to do that as well. Look, Roth conversions can really play a significant role in your estate planning, especially for those of you that maybe are looking to maximize your wealth that you're going to pass on to heirs while minimizing that tax burden along the way. So here are my eight tips on how Roth conversions can fit into the estate planning strategy. Number one, you ready for it? Number one, tax free growth for your heirs. Probably super captain obvious there, but Roth IRAs grow tax free and after your passing, your heirs can actually inherit that Roth without paying any income taxes on the distributions as long as the account was open for five years. But this can result in some really some significant savings for your heirs, especially if they end up inheriting the money when they're in higher tax brackets or if the funds put them into a higher tax bracket. So our estate planning strategy tip on this point is that converting part or all of your IRA to a Roth IRA really reduces the tax liabilities that your heirs are going to face, and that allows them to benefit from those distributions in a lot bigger way. This is particularly beneficial if you anticipate that potentially your heirs are going to be in a higher tax bracket than you are now. And if you do these Roth conversions the right way, it's, it's not as though you're paying all the tax just for them later. Because if you do them early enough and you have large enough IRA balances, you're going to end up saving yourself hundreds of thousands, if not millions of dollars of taxes over your lifetime. Tip number two, there's no required minimum distributions for the account holder. Unlike traditional IRAs, Roth IRAs don't require RMDs during your lifetime at all. But it also allows you to let those assets grow for the duration of your life without having to take taxable distributions. So the little quick tip here on your strategy is that by avoiding RMDs, you're going to allow more of the assets to continue to grow tax free and hopefully potentially leave a larger legacy for your heirs. Okay, moving along. Number three, it'll allow you to lower your tax burden for your heirs. Especially with the Secure act that came through in 2019. It's going to require your non spouse beneficiaries to empty those inherited retirement accounts, including IRAS and Roth IRAS, within 10 years of your original owner death. So while the rule applies to both traditional IRAs and Roths, the cool thing is a Roth IRA is much more advantageous for them because the distributions are tax free. So the estate planning strategy here is if your heirs are likely to inherit during their peak earning years, converting to a Roth means that they're not going to face those additional taxable income from forced distributions from those RMDs. And this can help do a lot to help avoid pushing them into higher tax brackets, which could happen with larger inherited traditional IRA. RMDs can be so large that it causes an issue with them because once they've inherited that ira, there's, there's, they cannot do any conversions once you've given them the IRA as an inherited ira. Tip number four, kind of asset allocation and legacy planning all at once. So Roth IRAs can be strategically used to pass on tax efficient assets to the next generation. So while beneficiaries of these traditional IRAs got to pay income tax on withdrawals, Roth IRA beneficiaries get to receive those inheritances tax free, which allows them to use full value of, of that whole inheritance. So the strategy here is for a multi generational planning approach, you can ensure that Roth IRA assets pass to children or even grandchildren, giving them a much longer horizon of tax free growth. Under this new ten year rule, tip number five out of eight is kind of a way to balance lifetime and post death taxes. So what I mean here is kind of by converting to a Roth, you take on some of the tax burden yourself on the front end And I would only suggest you do this if it, if doing that is better for you during your lifetime, unless it's just important to you to rescue your errors, doing it this way can be more efficient if you're in maybe a lower tax bracket compared to what your heirs are going to face. Oftentimes when you do aggressive conversions, you force yourself to a much higher tax bracket. So this may not appeal to everybody, but it's particularly relevant if your estate is really large or if your heirs are going to be in potentially the highest earning years when they inherit that IRA from you. So the strategy here is paying the taxes during your lifetime could potentially result in a lower overall tax bill, especially if your income and your tax rates are lower than what your beneficiaries may face when they inherit that traditional ira. All right, number six, this kind of deals with giving your heirs more flexibility with this 10 year rule. So as I've already said, under that secure act, non spouse beneficiaries have to empty even that roth IRA within 10 years after they inherit it. But because they don't have to pay taxes on those Roth distributions, it's going to give them a lot of flexibility. They can withdraw the entire amount tax free at any point during those 10 years, which allows them to maybe plan withdrawals based on what their financial needs are and other life circumstances and situations that come around. So our strategy here is that really recognize that your heirs can really optimize their distributions from the Roth IRA that align with their own financial and tax circumstance. Okay, number seven, only one more after this one left. And I love number eight, by the way, number seven is spousal inherited benefits. So a surviving spouse can roll that inherited ira, I'm sorry, that inherited Roth IRA into their own Roth account, no tax consequences or required distributions, which allows them to continue to grow that account tax free. So the benefits to your spouse inheriting that Roth are really huge. So the strategy here is the obvious. This is really a key benefit for married couples as it really is going to allow a very seamless transfer of those tax advantaged assets, which is going to offer a lot of, I don't know, say long term security for that that surviving spouse, number eight, deals with charitable planning and integrating a charitable planning game plan into your Roth conversion strategy. I've got a whole other video that we did about charitable planning and Roth IRAs that will pop up on the screen someplace that if you want more information on this, probably a really good one to dig into. So if you're planning to leave part of your estate to charity. Consider leaving the pre tax retirement accounts like your traditional IRAs to the charity. Since charities don't pay income tax on the withdrawals that they get, Roth IRA assets can be left then to non charitable heirs for tax free growth. So you're just kind of splitting the, the, the different assets out in a way that you're getting the biggest bang for your buck. Where taxes go where they're never, I mean assets go where they're never going to have taxes paid on it. And remember, there is another video I did that talked about special strategies to use during your lifetime to reduce your taxes on doing Roth conversions. And we'll pop that up somewhere on the screen. So the strategy here is just to remember that charities are tax exempt. So leaning them pre tax accounts avoids what we call tax leakage while your heirs still benefit from inheriting the tax free Roth IRA asset. I hope that's helpful to you. In summary, Roth conversions can really be used to reduce future tax burden for you and your heirs. And it gives you a lot of flexibility in how the assets are distributed and helps you manage the estate taxes in a more simplistic way. And of course there's a lot of other, there are a lot of other estate tax planning strategies that you need to be talking to your financial advisors or tax attorneys, that kind of thing. But converting to a Roth IRA really is going to ensure that your heirs inherit a much more tax efficient asset which allows them to maximize the benefit of their inheritance. So if you liked the video, hit the like button. Give me a thumbs up on it. If you like this kind of stuff on a regular basis, subscribe to the channel and when I put out new stuff, you'll be among the first to know. Hope you have a great rest of your day. God bless.