Wealth Management Group Newsletter – Spring 2024
Vedha Lekshminarayanan, Tanya Gierut

Is a Roth IRA Conversion Right for You?


Have you considered converting your traditional IRA into a Roth IRA? This strategy may offer several benefits including increasing the value of one’s after-tax retirement savings. However, a Roth IRA conversion is not a no-brainer. Whether you would be better off with a Roth IRA, or a traditional IRA depends on your circumstances.

Pay taxes now or later?

Traditional IRA contributions can be deductible, but withdrawals of contributions and earnings in the future are taxable. Conversely, Roth IRA contributions are nondeductible, but qualified withdrawals of contributions and earnings are tax-free. Generally, deciding between the two depends on the tax rate you will pay now versus in the future.

When you do a Roth conversion, you are immediately subject to income tax on the amount you convert that is attributable to deductible contributions and earnings.

When it makes sense

A conversion might be the right choice if:

  • You expect your taxes to be higher when you withdraw funds from the IRA in retirement because, for example, you believe your income will go up or Congress will increase tax rates.
  • Your income in the current year has fallen into a lower tax bracket, providing an opportunity to do a Roth conversion at a lower tax rate.
  • You have a tax situation such as a large net operating loss or charitable deduction that would offset taxable income created by a conversion.
  • Asset values in your IRA are depressed, perhaps due to market volatility, reducing the tax cost of a current conversion.

There are also other reasons to pursue a Roth IRA conversion. For example, Roth IRAs are not currently subject to required minimum distributions (RMDs). So, a conversion would give you the flexibility to allow funds to continue growing tax-free indefinitely. From an estate planning perspective, a conversion would allow you to pay the tax now, preserving the entire account balance for your beneficiaries.

Related Read: Planning for Required Minimum Distributions from IRAs: Why You Should Consider Making/Taking ROTH IRA Conversions in Low Income Years

Role of QCDs

On the other hand, a traditional IRA may be preferable if you plan to make significant charitable donations. Starting at age 70½, you can make qualified charitable distributions (QCDs) of up to $100,000 per year from a traditional IRA. QCDs can be applied toward your RMDs, and they are excluded from your gross income. So, they may be more valuable than ordinary charitable income tax deductions.

Deciding to do a Roth conversion calls for a careful evaluation of both your financial and tax situation. Your financial advisor can offer advice for you specifically.

For more information, contact Vedha Lekshminarayanan at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Wealth Management Services.

Funding Your Revocable Trust


A revocable trust can be a powerful estate planning tool, but it only works  if you fund it by transferring or retitling your assets in the name of the trust. Forgetting to fund a revocable trust is a common, but costly, mistake. It is a bit like opening a high-interest savings account but neglecting to deposit money in it.  

Advantages of a revocable trust over a will

A revocable trust (also known as a “living trust”) offers several advantages over a will alone. A properly funded revocable trust allows you to specify how the trust’s assets will be managed and distributed after your death, without the time and expense of probate. Avoiding probate by using a revocable trust also helps keep your financial affairs private.

Another benefit: Unlike a will, a trust can be used to provide for the management of your financial affairs in the event you become incapacitated. Additionally, as its name suggests, this type of trust is revocable, giving you the flexibility to amend, terminate or add assets to it at any time.

Related Read: Trusts – What Is the Hype?

Common assets transferred to a revocable trust

Bank Accounts
Bank accounts of significant value — including checking and savings accounts, certificates of deposit (CDs), money market accounts and even safe deposit boxes — generally should be transferred to your revocable trust. Follow your bank’s procedures for making the transfer, which may involve furnishing a certificate of trust. One caveat: Before attempting to transfer CDs to a trust, find out whether doing so will trigger early withdrawal penalties. If so, consider postponing the transfer until the CDs mature.

You should transfer brokerage and other investment accounts to your revocable trust. Your financial advisors or the account custodians can help you complete the necessary paperwork. For individual investments such as stocks or bonds, you may need to request that the certificates are reissued in the name of your trust.

Business Interests
If you own an interest in a privately held business (such as a closely held corporation, partnership or limited liability company) you may be able to transfer it to your revocable trust while maintaining your voting rights and other management powers. Be sure to consult the company’s bylaws or operating agreement for any restrictions on transferring your interest.

Real Estate
It is common for people to hold their primary residences, vacation homes and other real estate in revocable trusts. Making the transfer is simply a matter of executing and recording a deed transferring title to the trust. For property subject to a mortgage, you should ask the lender whether it requires any additional steps or documents to complete the transfer.

Personal Property
This category includes jewelry, electronics, furniture, artwork, antiques, clothing and collectibles. Typically, these items have no title or registration, but you can transfer ownership to your revocable trust by executing an assignment of personal property.

Be aware that revocable trusts usually provide little or no protection against creditors’ claims during your life. If asset protection is a concern, you may want to consider other forms of ownership, such as a domestic or offshore asset protection trust.

Assets to Exclude

Certain assets pass via beneficiary designation rather than through probate, so there is no need to transfer these non-probate assets to your revocable trust. And for certain assets, transferring them to a trust may be prohibited or have negative consequences. If you wish to have non-probate assets managed by your trust, one option is to name the trust as a primary or contingent beneficiary. To avoid unintended consequences, it is critical to coordinate your beneficiary designations with your overall estate plan.

Non-probate assets include retirement accounts, such as IRAs and 401(k) plans. Transferring these accounts to a trust may be deemed a distribution, possibly triggering income taxes and early withdrawal penalties. You can name your trust as a beneficiary but be sure to discuss the potential tax implications with your advisors first.

Health Savings Accounts and medical savings accounts generally cannot be owned by a trust, although you may be able to name your trust as a beneficiary. And because they pass by beneficiary designation, life insurance policies do not belong in your trust, either. That said, if you are concerned about asset protection or minimizing gift and estate taxes, it may make sense to set up an irrevocable life insurance trust to hold a life insurance policy.

Keep transferring acquisitions

Funding a revocable trust is not a one-time event. As you acquire new assets, it is important to transfer them if it is appropriate. It is also a good idea to have a “pour-over will” as a fail-safe. A pour-over automatically transfers any assets still titled in your name at death to your trust. Those assets will not avoid probate, but the will helps ensure that they will be distributed according to your wishes.

Sidebar: What about vehicles?

It is possible to transfer a vehicle’s title to a revocable trust, but it is generally not advisable. Tax and registration requirements can make transferring title burdensome and expensive, and if the vehicle was financed by a loan, the lender may not allow you to transfer it. Also, ownership by a trust may expose other trust assets to liability should the vehicle be involved in an accident. Of course, keeping a vehicle out of your revocable trust may subject it to probate, but many states provide streamlined procedures for transferring vehicles to your heirs outside of probate.

While creating and funding a revocable trust can be a useful estate planning tool – keep in mind it may not be for everyone. There are other ways to avoid probate with transfer on death (TOD) and payable on death (POD) accounts. Consult your attorney and financial advisors to discuss the best options for you.

For more information, contact Tanya Gierut at [email protected] 312.670.7444. Visit ORBA.com to learn more about our Wealth Management Services.

Forward Thinking