Dear Mr. Berko: I’m 69 and retired, and I have an individual retirement account worth $628,000. Fortunately, we don’t need the income from the IRA to support our living expenses. And because I have a $176,000 tax-loss carryforward from a business that went bust a decade ago, my broker suggested that I convert my traditional IRA to a Roth IRA and use the carryforward to pay the taxes. If I did that, I would make the beneficiaries our grandkids, who could enjoy the continued stock growth and stretch the Roth payments over their much-longer lifetimes. Because their parents are “financial stupids” (your words), I need to change the investment mix to some Standard & Poor’s 500 index funds and several no-load mutual funds. I would appreciate your recommendations.
— B.R., Erie, Pa.
Dear B.R.: Fire that brokster, who is a blithering, brain-dead idiot and dangerous to your wealth. He should have “stupidity” branded on his forehead in large letters. You can’t use a tax-loss carryforward to pay those taxes yet.
Leaving a Roth IRA for your grandkids to grow tax-free over your lifetime and theirs is an expialidocious idea. Many folks have Roth IRAs because, unlike the case with traditional IRAs, they’re not required to take distributions at age 70½. As of today, a Roth IRA can still remain untouched throughout your lifetime, even if you live to be older than Methuselah, and the income is tax-free. Today, those who inherit an IRA (Roth or traditional) can stretch those payments over their lifetime. This permits most of an inherited Roth to continue growing tax-free for your grandkids.
But that old gray mare ain’t what she used to be, and that old Roth IRA we believed to be sacrosanct and immune to change might soon be corrupted by our government’s insatiable greed for money. There are two proposals in the 2015 budget that are likely to be passed and might toss a grenade into many estate plans.
