Tax strategies for Roth conversions

By converting a traditional IRA into multiple Roth IRAs, wealthy boomers can save on taxes even if their accounts lose value, Bloomberg reports. The new accounts should be split among different assets classes; if one account loses value, it can be recharacterized into a traditional account to save taxes paid on the account, according to Joseph Spada, managing director of Summit Financial Resources in Parsippany, N.J.

Recharacterizing the account doesn't earn back the money it lost, so boomers shouldn't take on more risk than they're willing to, Spada told Bloomberg. But, a client in the top income bracket with an IRA worth $1.2 million would pay 35 percent in federal taxes when converting to a Roth IRA. If the traditional IRA is split into three Roth IRAs and one loses value, the client can save the 35 percent tax paid on the account, according to Spada.