Ed Slott, a well-respected authority on IRAs, published an article this month in Financial Advisor Magazine titled: “When Roths May Not Be Right”. In it he gives a dozen reasons why Roth conversions may not be a good idea. And we agree with overall message. As with most strategies, there are always some drawbacks.
In the 2008 movie WALL-E mankind has left earth behind because it has become covered with trash from products sold by the Buy ‘N Large Corporation. WALL-E has been left behind to clean it all up. In one part of the movie, humans arrive at earth in a giant space ship. On board they ride around a space resort on hovering chairs watching screens and videos all day.
One of the hardest things to do as an investor is to think logically, without emotion. The human mind will process facts but it is difficult to make decisions when there are conflicting opinions. This can give rise to confusion or even anxiety. In order to deal with this situation, another part of the mind intervenes—the emotional side.
Anyone who has a trust probably knows that the federal tax rates that apply to trust income and capital gains are much higher and kick-in sooner than on income from earnings or other sources, e.g., ordinary income. As a result, taxes can take a significant bite out of trust assets. And your trust pays Massachusetts state income tax, too, but there is a way to avoid it.