You can greatly lessen your children's income tax. Once you have paid the income tax on the Roth conversion, not only will IRA accumulations avoid income tax, but all future distributions from the IRA, whether to you or to your children, will be tax-free.

Here's a brief illustration of the benefits. Let's say you convert a $1 million IRA to a Roth IRA. You'll pay $400,000 in income tax (ouch!); it's better if you pay this tax from sources outside the IRA. Remember, this is tax either you or your children would have to pay some day in any event. But your paying it reduces your estate by $400,000, saving about $200,000 in estate tax.

Let's say the Roth IRA grows to $2 million by the time your children take it out. Because of the Roth conversion, the $1 million increase will never be subject to income tax, neither on its accumulation nor its distribution. If the children's tax rate is 30%, this saves $300,000.

The combined estate tax and income tax benefit in this case is $500,000. If instead you had converted half the IRA to a Roth, your family would still get half the benefit.

If you'd like to talk further about this or other estate planning ideas, please call Julie Dickens, Al Falk, Alan Macpherson, Eileen Peterson, or Sandy Rovai, all members of our Trusts & Estates Group.