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Reply to "If you inherited $1 million how would you choose to allocate it?"
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[quote=Anonymous][quote=Anonymous][quote=Anonymous]Use the entire amount to pay taxes on a Roth conversion.[/quote] Why?[/quote] The best funding source for taxes on a conversion is money that is either not taxed or more lightly taxed. A $1 million inheritance is not taxable income, so when you do the conversion you pay taxes only on the converted amount, and not also on the funds you use to pay the tax. This is better than, say, liquidating assets in brokerage to fund the taxes as those are taxed as long-term capital gains. You don't want to pay for the taxes from the 401K or IRA you are converting from as that lessens the amount you can put into the Roth forever tax free.[/quote]
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