Future Conversion of SIMPLE to Roth

[Guest WFMinter]

Since my spouse and I are taking advantage of the 4-year averaging on our $100,000 IRA Roth conversion we are faced with reportable income that bumps us up near the 28% tax rate. I currently contribute the maximum allowable under my salary reduction agreement with my employer's 403(B) plan. We also both have self-employment income which is expected to boost us up into the 28% bracket during the 1999 - 2001 period that we can spread out our conversion tax liability

We have both set up SIMPLE IRA's to provide the opportunity to tax defer enough of our self employment income to get us back down to 15% for at least the 1999 - 2001 period.

We are considering the following strategy for the next several years:

1) Divert enough of my 403(B) salary reduction funds into our SIMPLE IRAs to reach the maximum allowable (max. of $6,000/yr, or 100% of net self employment income).

2) In Jan. 2002 transfer funds in our SIMPLE IRA's to regular IRA's (which is permitted 2 years after initially setting up a SIMPLE IRA) then convert to a Roth IRA. By 2002 we will have significantly reduced our reportable income (by $25,000/yr) since we have finished the 4-year spread from the first conversion. We would project that we could still report the income resulting from the 2nd Roth conversion and still stay within the 15% marginal tax rate for that year.

I would see this as a way to expose additional tax-deferred funds to the Roth advantages yet still pay taxes at the minimum 15% rate during this time period.

Any weaknesses in this strategy that I should consider before I alter my 403(B) salary reduction agreement with my employer?