Retirement Options: Converting to a Roth IRA

At some point during your retirement years, you may find it advantageous to convert your traditional IRA to a Roth IRA, in which the taxes are paid up front and the eventual distribution comes to you tax-free.

Converting is not that big of an issue, technically. It can be a big issue financially, however, because you face the prospect of paying those taxes in the year of conversion. Above all, however, the conversion has to make sense.

Consider this scenario:
For a married couple who want to convert to a Roth but who do not have the money to pay the taxes, one strategy may be to purchase a life insurance policy that we can use is a spousal Roth conversion.

Let’s say the husband and wife are both living, it’s the husband’s IRA account, and the couple does not need the money in the account. When it comes time to take the required minimum distributions, one option may be to purchase a life insurance policy on the husband in the amount projected to be necessary to pay the taxes upon his death so that his wife can convert the account to a tax-free Roth.

Let’s say that it would require $100,000 in taxes to convert a $400,000 account. When the husband dies, the wife inherits the $400,000, and she also receives a $100,000 death benefit. She could use the life insurance money to pay the taxes, and now she has a $400,000 Roth. That’s a way to accomplish a conversion without having to come up with the money right away.

Make sure you discuss with your financial advisor if converting to a Roth IRA makes sense for you and your family. This approach may not be right for everyone. Visit for more resources and advice on financial planning.

Categories: IRA, Retirement