I went to a seminar tonight on Roth conversions.
He said that one reason to convert was that a Roth IRA is smaller because you have paid tax on it already, so it reduces the size of your estate and reduces estate tax.
I understand the logic, but it seems wrong; they charge estate tax on whats basically accrued income tax? Can that be right?
It's right as far as it goes. But it's really more along the lines of a small silver lining among the clouds. Still, more analysis is required to determine which is best in the individual case.
The idea is that with a traditional IRA it pays no tax so it grows faster. And over time can grow quite a bit larger. Depending on the interest rate received and the amount of time, one might be better than the other. Taking estate tax into consideration would be a minor consideration, though it can make a difference.
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