Now that jimrac has given an example, I understand the point he is trying to make. However, there's a couple of things he doesn't consider. IF you took an inheritance as cash, and IF you kept it as cash, then yes, you could spend it down without incurring income tax. However, if you take that money and invest it, you will pay taxes upon your gains. But you do get that Âstep up basis jimrac is depending upon. But of course, if you allow the account to compound over time without spending principal, you run the risk of incurring estate taxes for your own heirs. You could also buy an annuity, which has some limited tax advantages. Conversely, inheriting an IRA is different. You do not have to cash out an inherited IRA, in fact you should always roll it over into an FBO account in your and the deceasedÂs names. IF the owner was taking distributions, heirs also have to take distributions  but they can take the minimum distribution (Required Minimum Distribution, or RMD) which at young ages is a very modest amount indeed. If the owner was not taking distributions, the IRA can be left intact until age 70-1/2 for the heir. And in the case of an inherited Roth IRA, there is NEVER any income tax, for owner or heirs. Because the gains in the Roth compound tax-free, they win hands-down over any taxable account. The biggest issue is the salary restrictions (higher wage earners are barred from contributing to a Roth, although in 2010 only they can convert any amount they wish to pay income taxes on now) and the low annual contribution amount (although I expect Congress will probably increase those at some point). As my ex-boss, a respected CFP, used to say, "Don't let the tax tail wag the dog!" Tax planning should be looked at in a holistic fashion. Somebody's going to pay taxes, it just depends on who that is, and how much. Frankly, if you had a $1M mutual fund account - and I know quite a few people who do - if you were that concerned about your heirs paying income taxes, you'd set up an ILIT (Irrevocable Life Insurance Trust) for your immediate heirs, and a Bypass or QTIP trust for the future generation heirs.

If you calculate the amount of tax you would pay upon converting to a ROTH, I'm sure you will see that it is no advantage in doing so. New IRAs for this and future years, though, should probably be ROTHs.

I had my accountant check out our options, she came up with 5 options and we choose to cash it in with a 10 year averaging plan. We paid a huge amount of taxes but got a lot of it back when we filed taxes. I do not want my money tied up in anything, especially don't want to worry about paying taxes on it when I need to take some of it out. My husband and I talked it over and he agreed with me. We had a $2,000. IRA and I hated it. My bank forgot to send me a reminder and it would have cost me most of the dispersion as a penalty. The bank post dated it and I didn't lose any money.

Thanks jose and steve for the confirmation and advice! I like the idea of VanGuard or Fidelity and will check out both more thoroughly. I actually have about 25 years to retirement and will be increasing my retirement savings each year. Would love to save 25% but my income is low and I'm already living rather frugally (not a shopper, no vacations, no credit card debt, 3 month emergency fund)! For the last 4 years I have been saving (IRA/Roth) just over 10% of my gross income. My income is low enough that I have qualified for the maximum Saver's Credit (which is why some savings is in an IRA and some in a Roth). In the next year I will be re-entering the regular world of work (after being self-employed for 15 years). And while I have earned a living and loved being self-employed I have decided to do this so that I have better health insurance plan and work for a company that offers a 401K with a company match. My total saved is about $10,000 and the split is actually about $4000 in a regular IRA and $6000 in a Roth IRA. My thoughts are that I should invest the $4000 IRA in something that is relatively stable and I should invest the $6000 Roth in something that offers the opportunity for a greater return (especially since there is no tax on Roth earnings at withdrawl once I retire). At this time I am not looking to convert the regular IRA into a Roth IRA. Knowing the split ... $4000 IRA and $6000 Roth what the best option for each?