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Subject:  Roth Conversion? Date:  1/4/1998  10:07 AM
Author:  FoolMeOnce Number:  1046 of 88826

I would like to provide for your consideration, a few comments regarding the potential conversion of a traditional to the new Roth IRA. Based on the conventional criteria being bandied about regarding time horizon and future tax rates, I would probably have to consider myself a prime candidate for conversion. I find myself extremely reluctant to do so however.

Years ago, I started a traditional IRA. It was not a decision I entered into lightly. The IRA was a new and previously unheard of type of program. After performing a great deal of due diligence in evaluating all aspects of the program and how they related to my personal financial situation and plans for the future, I took the plunge. Had I known that within the short span of a few years, congress would make modifications to the program which, for me, effectively eliminated the deductability of contributions, I might have reconsidered the advisability of my involvement. The deductability of contributions was after all, the major inducement for participation in the program and was the hook that conviced me and many others to become involved. Since congress saw fit to leave untouched the considerable penalty for early withdrawals (bless their hearts) I have retained my IRA and in fact make regular (nondeductable) contributions.

It has not gone unnoticed that for all converted accounts, taxes will be collected on a pot of money which otherwise would not become taxable until some distant future time. Perhaps it would not be overly cynical to suspect that the tax eaters in D.C. would be inexorably drawn to a much larger (and previously untaxed) pot of money sitting in all those Roth IRAs. It is also very easy to visualize a situation brought on by some budget crisis during which the considerable benefits of the Roth IRA would be curtailed. Everyone is talking about how the Roth IRA is the greatest thing since sliced bread. (Some would say too good to be true). Everyone is sharpening their pencils, reading the tax manuals and crunching the numbers. But all of this activity is being carried out with the unstated assumption that the Roth IRA will always exist in its current state. It ain't necessarily so. This approach may be hazardous to your wealth. Your Government asks you to make long term commitments when you enter these programs. Your elected represenatives however, operate with a considerably shorter time perspective.

Every time I have ever lost money, it has been when I have lost personal control. Years downstream, it may be that the greatest benefit of the Roth IRA is that it diverted the attention of the tax eaters from the traditional IRA and which would therefore have become a more dependable (stable) vehicle for the planned accummulation of wealth. As for now, I think I will stand pat. For me, it is a case of "once bitten, twice shy" Or, as I have previously stated, you can....

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