Anyone who just can’t write that check should not be doing a Roth conversion. Let it go. That’s the No. 1 obstacle for clients, even after you explain to them the long-term tax-free Roth benefits. The up-front tax hit is an even more important concern this year, since the Tax Cuts and Jobs Act eliminated people’s ability to undo a Roth conversion for 2018 and future years. 2017 Roth conversions can still be reversed up to October 15, 2018, but after that, that’s it. No more recharacterizations.

Once clients convert, they are committed to the tax bill. You’ll need to make sure they understand this. Clients may worry about being locked in to paying a tax now without having the time to know the true cost (which won’t be until tax time the following year).

2. Tax Rates

The fundamental principle of tax planning is to always pay taxes at the lowest rates. The best situation is for clients to take deductions when tax rates are higher and pay taxes when the rates are lower. Those planning Roth conversions must know whether clients will be in a lower or higher tax bracket when they retire. If they’re in a lower bracket, they should avoid converting to a Roth now.

As we switch from the old (pre-2018) tax system to the new one, some clients will not really know how their taxes will play out, especially if they are now taking the standard deduction and may be losing out on personal exemptions and other benefits that they were used to. But in many cases, those lost tax benefits may be made up with lower tax rates and a higher standard deduction.

You really won’t know for sure until you can actually look at the completed 2018 tax return with all the new bells and whistles. Anything can come up that you or the client did not see coming, whether it’s increased income, unexpected deductions, business losses or other items that can throw a monkey wrench into even the best projections. If you cannot be confident in projecting the actual tax that a Roth conversion might generate, then maybe you should have these clients hold off on a Roth conversion for now. Another option might be for them to test the waters by making a smaller conversion that keeps them from moving into a higher tax bracket.

3. Beneficiary’s Tax Rates

In addition to projecting your clients’ tax rates, you should look further into the tax rates of their beneficiaries. If collectively the beneficiaries will be in lower tax brackets, a conversion may not be warranted. You might have to look at each beneficiary here. One child might be in a very high tax bracket and benefit from inheriting a Roth IRA. Another child might be in a low bracket, which means the tax he or she pays on required distributions from a traditional inherited IRA wouldn’t be that great. In that latter case, a Roth conversion is not necessary. Note, however, that the conversion decision must be made by the IRA owner in the first place, since non-spouse IRA beneficiaries cannot convert an inherited IRA to an inherited Roth IRA. However, in a tax law quirk, named beneficiaries who inherit company plan funds, like 401(k)s, can convert them to an inherited Roth IRA. Go figure.

Also keep in mind: Multiple beneficiaries = less tax on distributions.

When looking ahead at a beneficiary’s future tax bracket, take into account the splitting of the graduated rates over the returns of multiple beneficiaries (if there is more than one). Multiple beneficiaries get the funds split among them, so overall they will pay less tax. For example, one person who reports a $30,000 taxable IRA distribution will likely pay more tax than three people who report $10,000 each. They can each use up their lower brackets, thus lowering the overall tax.