I recently received the following question –
“I’m currently in a second marriage and my wife and I would like to move our IRAs around a bit. My children are older, getting ready to retire soon, and my wife’s kids are younger with high earnings. It makes sense for us to leave the Roth IRA money to her children, so they won’t pay tax at their high rate, and the Traditional IRA money to my kids who are going to be in the 15% bracket when they retire.”
I must admit, this is an interesting way to maximize your legacy. Unfortunately, as the title explains, the I stands for individual, and you can’t make these changes while your alive. My IRA is mine until I die or until a judge orders a split due to a divorce. You can assign beneficiaries in line with your goals, but unless you both meet your maker at the same time, the beneficiaries won’t get their inheritance when their own parent passes. That opens another can of worms.
What might help the situation would be for your wife to convert a bit of her Traditional IRA each year to Roth, just enough to top off your current bracket, but no more. A reminder, you should each designate your beneficiaries through the company that holds your IRA. Retirement accounts such as 401(k) and IRAs lose their ability to pay out over the lifetime of the beneficiary if left via a will. If you have any questions on this, please ask. The savings over the years for your beneficiaries is well worth getting this right.