IRA ROLL-OVER TO ROTH

[Guest thimbleberry46]

I UNDERSTAND THAT IF WE MAKE $100,000 OR LESS INCOME PER YEAR I COULD ROLL OVER MY IRA TO ADD TO MY ALREADY EXISTING ROTH FUNDS AND THAT IT WILL BE TAXED AS REGULAR INCOME. SINCE WE HAD A SLOW YEAR AND EXPECT TO DO MUCH BETTER NEXT YEAR, I WONDER IF THIS IS THE YEAR TO ROLL-OVER...QUESTION...DOES IT PAY OFF IN THE LONG RUN TO DO THIS NOW AND PAY THE EXTRA TAXES AT THIS TIME OR SHOULD I JUST KEEP SOME OF OUR RETIREMENT MONEY IN REG. IRA AND SOME IN ROTH. I AM 52, WORKING AND MY HUSBAND IS 61 AND PLANS ON WORKING AS LONG AS HE CAN...HOPEFULLY AT LEAST TO AGE 70. HIS MONEY IS ONLY IN A ROTH ACCT. DOES THE $100,000 LIMIT INCLUDE THE AMOUNT IN THE TAXABLE ROLL-OVER? DOES THIS DECISION NEED TO BE MADE BY JANUARY OR CAN I WAIT UNTIL APRIL 15 TO DECIDE? ANY FEEDBACK WOULD BE APPRECIATED.

[Guest allancoleman]

Roth conversion deadlines are December 31st of every calendar year , Thimbleberry46 , so you've got less than six weeks to get it done . Contributory Roth deadlines are April of every tax year . The amount of your Roth conversion does not count toward your income limit . As for whether it's a good idea or not , you'll have to decide that for yourself . I like them myself and usually attempt to do one every year . More information on Roths is available at :

http://www.rothira.com

[Guest mjb]

You need to ask youself if you will be a higher or lower tax bracket when you retire. If your tax bracket in retirement will be higher than it is now then a Roth is good idea. If not you will wind up paying extra tax in the year you convert to a roth then you will if you receive the payments in retirement when your taxes are lower. Remember when you convert to a Roth you lose the time value of the amount you paid in taxes that could have been invested. For example if you are in the 25% tax bracket you will pay 1000 in taxes on a 4000 contributions. After 18 years you will have given up $4000 assets on the $1000 paid in taxes at an 8% rate of return.

Another reason for persons at your age to convert to a Roth is if you will not need to take distributions from the Roth IRA during both of your life times and the Roth IRA will be inherited by your heirs who will not pay any income tax.

The last reason to convert to a roth is if estate tax will be due on your property at the later of you death or your husband's death. Paying the income taxes on the roth conversion will reduce the assets in your estate at your death subject to estate tax. Under current law only estates worth more than $2,000,000 are subject to Federal estate tax although some states tax lower amounts.

[John G]

All of the above advice is on target. If only a modest amount of money is involved, it might not be worth the hassle.

I will add that if substantial assets are involved you need to talk to an accountant or tax advisor. You custodian is not responsible for knowing the tax laws and how they apply to you. You should get a copy of IRS Publication 590 and read about the conversion process.

Keep in mind that a hybrid or combination of IRA and Roth often gives you some of the distribution flexibility.

If after reading 590 and talking to a tax advisor you decide to proceed... you need to move fast because many custodian IRA depts. get congested at year end. You will need to give the custodian a letter of instructions probably no later than Dec 15 (ask you custodian about a deadline) and then monitor to make sure the conversion gets done before year end.