ROTH CONVERSION/ REVERSE COMBO HELPS CREATE TAX-FREE LEGACY
With both of you turning 73 later this year, you’re reminded that you will need to take your first Required Minimum Distributions out of your IRAs. Of the belief that future tax rates are likely to be higher than today’s, you also like the idea of creating a legacy for heirs that has no tax burden attached.
The issue is that, although your income from speaking engagements plus your combined pension and Social allow you to maintain some cash reserves, you are in no position to fund the one-time, six-figure tax liability that would result from converting those traditional IRAs to Roths. Alternatives you are considering include a “staged” conversion of funds to Roth IRA accounts or perhaps converting your account but not hers. Of course, you understand that, unless you were both to do a total one-time conversion, there would still be the need to take RMDs on whatever balances remained in either or both traditional IRA accounts..
In contemplating different approaches to Roth conversion tactics, consider your housing wealth in the mix. Using a reverse mortgage “standby line of credit”, you can tap your own home equity to the extent needed to pay tax on one or both Roth IRA conversions.
Importantly, moving forward, you would have no obligation to make monthly mortgage payments, continuing to be responsible for upkeep and insurance. Since reverse mortgages are non-recourse loans, both you and your heirs would be protected from ever being “upside down” (owing an amount greater than the value of the home itself). Meanwhile, the Roth conversion would help provide that no-tax-burden-attached legacy for your heirs.
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Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).
Please consult a tax advisor. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender