Craig Wear, a CFP, explains why converting to a Roth IRA can save substantial taxes over your lifetime and for your heirs. The key: use money outside retirement accounts to pay the conversion taxes, not money from the IRA itself. Even without outside liquidity, conversions can still work.
The benefit of this, obviously, is that it maximizes the amount that you're actually able to get converted to the Roth ira, which gives you more tax free growth inside of that. It does require that you have liquidity outside retirement accounts, meaning you have money you can actually get to. So I'd rather pay 20% on an outside investment that may create some tax problems for me later than pay full income tax to take it out of the IRA if I can avoid it. Trust me, they still save millions of dollars of taxes over their lifetime and for their kids by doing it this way. It's better to do it with outside money, but if you don't have it, don't worry about it. It'll probably work out.
