This presentation is about Roth IRA Conversions from the perspective of Estate Planning.

1. Roth IRA Conversions
By Ward J. Wilsey, JD, LLM
3655 Nobel Dr. Suite 345
San Diego, CA 92122
(858) 764-2672
wardwilsey@wilseylaw.com

2. Ward J. Wilsey, JD, LLM
 BA in Economics from UCSD
 JD from University of San Diego
 LLM in Taxation from Washington University in St. Louis
 Estate Planning Attorney with the Wilsey Law Firm
 Frequent lecturer with several providers of continuing legal
education for attorneys, including the National Business
Institute

3. Roth IRA Overview
 Roth IRAs are treated exactly like regular IRAs
 Except for where the Internal Revenue Code specifies
 Three main advantages
 Distributions are Tax Free
 No Required Minimum Distributions (“RMDs”)
 No Maximum Age for Making Contributions
 Disadvantage
 Cannot Deduct Contributions

4. Minimum Distributions Rules for Roths
 No Lifetime Required Distributions
 408A(C)(5)
 Post-Death RMD rules do apply
 Reg. § 1.408A-6, A-14(b)
 Roth distributions and conversions do not fulfill MRD
requirements for a traditional IRA
 Reg. § 1.408A-6, A-15

5. Roth Distributions
 Qualified Distributions are Tax Free if they meet two
requirements:
 Five Years after first contribution
 § 408A(d)(2)(B)
 And one (or more) requirements of § 408A(d)(2)(A) are met:
 After Age 59.5
 After Participants death
 Attributable to Participant being disabled

6. Ways to Fund Roth IRA
 Regular Contributions
 Less of Contribution or the applicable dollar limit
 § 408A(C)(2)
 Less Traditional IRA Contributions
 Applicable Dollar Limit
Year Dollar Limit Add on Over 50
2002-2004 $3,000 $500
2005 $4,000 $500
2006-2007 $4,000 $1,000
2008-2010 $5,000 $1,000

7. Income Limits for Contributions
 2009
 Single Income Limit of $105,000 MAGI
 Phase-out to $120,000
 Married Income Limit of $166,000 MAGI
 Phase-out to $176,000
 Basically no contributions for Married filing separately

8. Rollover Roth IRA
 Transfer Funds from Traditional IRA
 Amount includible in gross income
 § 408A(d)(3)(A)-(C)
 Three Ways (§408(d)(3)(A)(i))
 Cash from Traditional contributed to Roth within 60 Days
 Plan to Plan Rollover
 Re-designated by Custodian

9. Who May Convert?
 2009
 Income Limit of $100,000
 No age requirement
 Watch out for paying taxes with IRA if under age 59.5, 10% early
withdrawal penalty
 MAGI (Modified Adjusted Gross Income) (See generally §219)
 Start with Adjusted Gross Income
 Certain income normally excluded in added in and certain deductions
are not allowed
 i.e. IRA Contributions

10. Who May Convert
 2010
 Anyone may convert, no income limits
 May pay the taxes over two years
 ½ 2011
 ½ 2012

11. Mathematics of a Conversion
 Example
 Joe has $500,000 IRA growing at 8%
 $500,000 of non-qualified liquid assets growing at 6%
 Difference in growth rates used to reflect lack of income taxes
affecting IRA growth
 Age 50
 Convert or no Convert???

12. Comparison in 2030
Conversion No Conversion
 Joe converts $500,000 IRA to Roth  Joe doesn’t convert
IRA and pays the taxes with Non-  After in 2010
IRA assets
 Taxes of $225,000 state and  Roth IRA worth $500,000
federal growing at 8%
 Liquid Assets now worth
 After in 2010
$500,000 6%
 Roth IRA worth $500,000
growing at 8%  In 2030
 Liquid Assets now worth  Roth IRA worth $2,330,478
$275,000 6%  Non-Qualified worth
 In 2030 $1,603,567
 Roth IRA worth $2,330,478  Total is $3,934,046
 Non-Qualified worth $881,962  Increase reflects built in Capital
Gains Tax Liability
 Total is $3,212,440

13. Conversion
 These are almost equal accounting for taxes
 The big deal is if taxes raise in the future, since distributions
will be taxed at a higher tax
 Although the conversion is a bust from the IRA owners
perspective if tax rates lower in the future

14. Comparison in 2050
Conversion Non-Conversion
 IRA $10,862,260  IRA $3,777,396
 Non-Qualified $2,828,572  Non-Qualified of
 Total of $13,690,833 $5,142,858
 Reinvested RMDs (now
non-qualified of
$4,020,364)
 Total of $12,940,620
 Decrease reflects that taxes
were paid on RMDs

15. Beneficiary 50 Year Old
Conversion Non-Conversion
 IRA worth $10,862,260  IRA worth $3,777,396
 By age 85, the Beneficiary  By age 85, the Beneficiary
will have $60,097,460 in will have $11,494,527 in
distributions distributions
 $2,828,572 in non-  $5,695,259 in non-
qualified assets qualified assets
 Assume all growth and  Assume all growth and
income is distributed income is distributed
 $11,180,310 by age 85  $18,110,433 by age 85
 $71,277,770 total  $29,604,960 total

16. Bottom Line
 If Conversion Occurs, Inherited Roth IRA is far preferable
 If wealthy clients have IRA or 401K that they don’t need,
and have sufficient liquid funds for conversion, they should
probably do it

17. Roth Conversion Option 3
 Conversion occurs after clients death
 Internal Revenue Notice 2008‐30 allows for a Roth
Conversion to occur after a clients death
 Make sure the numbers work
 You are using Non-Qualified Assets to pay taxes
 Life Insurance???

18. Keep In Mind
 For Estate Planning Purposes:
 Best Scenario is Roth Conversion during lifetime
 Second Best is No Conversion
 Roth Conversion after Death???