by Richard Schlueter, Vice President – Insurance Services, Wealth Enhancement Group

While still young, 2010 has been dominated by conversations about Roth conversions. The combination of an indefinite repeal of rules that previously disallowed certain people from converting traditional IRA’s to Roth IRA’s and the ability to spread the tax liability over two years has been the fuel for these conversations.
 
As I see it, any of us considering a Roth conversion falls into one of two camps. First, there are those of us considering conversion because we need the investment to provide for us while we are alive. Second, there are those of us considering conversion with no intention of using the assets. We intend to pass the IRA assets on to heirs, charity, or both.
 
For those that find themselves in the second group, the group that has no intention of spending the IRA assets, I’d like to propose that you give consideration to something that can be easily overlooked during a typical conversion conversation. That something is life insurance.
 
Rather than simply running calculations to determine when the cross over point occurs, I encourage you to discuss the option of life insurance with your advisor. While results are based on individual circumstances, we often find that forgoing conversion and the resulting hefty tax bill, in favor of life insurance funded with distributions from your IRA, results in more wealth being transferred to heirs, charity or both. Additionally, this can be done with less investment risk.
 
Whether you convert your traditional IRA to a Roth IRA, or you choose to maintain your IRA and buy life insurance, both scenarios are a repositioning of existing dollars. If the objective is to pass the IRA assets on to heirs or charity, do yourself the favor of considering all options.