By Andy Ives, CFP®, AIF®
IRA Analyst
QUESTION:
What’s your opinion of the value of Trump Accounts? Worth it for kids? Should the child do a Roth conversion at age 18? Or is it better just to do a Uniform Transfers to Minors Act (UTMA) account? Or perhaps a mix of both since the IRA/Roth is retirement-only money and the UTMA would be able to be used before retirement?
ANSWER:
There is no right answer as every person is different and has different objectives. However, you cannot argue with the mathematics of compounding interest. Trump Accounts are saddled with several restrictions, but the long-term saving possibilities cannot be denied. Assume annual $5,000 contributions go into a Trump Account for a child until they reach age 18. Those dollars are required to be invested in a vehicle that tracks the S&P 500 index (or any other index comprised of stocks in primarily U.S. companies). As such, it is not unreasonable to imagine the account being worth north of $150,000 by age 18. Trump Accounts then begin following the standard IRA rules and can be converted to a Roth IRA. With a conservative (by historical standards) 6% average annual return, the account could be worth over $1.7 million, tax-free, by the time the child is age 60.
QUESTION:
I’m age 75 and started to take my required minimum distribution (RMD) from my IRA at age 73. I want to know if I don’t need my RMD money, can I just dump it into my Roth IRA account? I can survive on my pension and Social Security that I receive monthly. Please help!
Thank you,
Barbara
ANSWER:
Barbara,
RMDs are not allowed to be converted, so those dollars cannot be dumped into your Roth IRA. However, after your RMD for the year is satisfied, you could then do a Roth conversion at any time during the rest of the year for whatever amount you wish. While this strategy will generate more taxable income now, it will also reduce future RMDs and result in tax-free earnings on the dollars you convert; short-term pain for potential long-term gain.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.