Deferring income to qualify for a conversion to a Roth

[Guest Dodd Cosgrove]

I have been unemployed so far in 2001. I have a traditional IRA of substantial size as a result of rolling over 401K funds from previous employment. I would like to convert to a Roth in 2001, but I am about to go back to work which will kick me over the MAGI limit. My new employer has agreed to defer most of my income in 2001 to 2002 to allow me to stay under the MAGI limit. Is this approach legal in the eyes of the IRS? I don't want to do anything illegal.

[John G]

Dodd,

You need to find a good local accountant to advise you on your circumstances, both concerning defered compensation and the advisability of converting the existing assets to a Roth.

Facts and circumstances will be the controlling factors in the first question. It is fairly common for bonuses for a given year to be issued in the following year. However, states and the IRS can get very upset about employees not getting paid. You might wonder if the agreeable employer will actually "remember" the agreement. Also note that mutual fund capital gains, Sub S corps, state tax returns!, etc. may upset your careful plans to be eligible.