If you or your parents have significant medical tax deductions this year, consider this year-end tax saving idea.
It is not unusual for elderly taxpayers to incur significant qualified tax-deductible medical expenses in a year related hospital stays, home healthcare and/or specialized medical care facilities. Often, these expenses are so large that the taxable income (frequently just required minimum distributions (RMDs) from IRAs and social security income) on their tax returns is reduced to $0 after accounting for their medical deduction. If this may be a situation you find yourself or your elderly parents in, consider converting a portion or all traditional IRAs owned to a Roth IRA. By taking advantage of a significant medical deduction, converting your traditional IRA to a Roth IRA could result in minimal or no taxes on the Roth conersion.
The two main benefits to the Roth IRA: first, there are no annual RMDs and second, earnings on the appreciation of the investments held in the Roth IRA are tax-free. Plus, depending on when the taxpayer’s Roth IRA was established, there may be no taxes related to RMDs made by the beneficiary of an inherited Roth IRA once received upon the death of the taxpayer.