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Subject:  Re: conversion from IRA to Roth IRA Date:  3/5/2001  8:49 AM
Author:  pmarti Number:  47678 of 127549

I currently have a regular IRA that I am considering converting to a Roth IRA. The value of my IRA currently stands at about $13,000.00. In the IRA I own shares of stock that I expect to increase dramatically in value very soon. Will I be able to convert to the Roth for Year 2000 at current value, or will it have to be for Year 2001.

Conversions, unlike contributions, are attributable to the year in which they happen. It's too late to do anything for year 2000.

If I do it for Year 2000, my income will not be over $100,000. If I have to do it for 2001, my income may be over $100,000 as I have the same stock in my regular stock account as well.

Remember that a paper gain in the stock in your taxable account doesn't increase your AGI. That happens only when you sell. If you are anticipating selling some of the stock to pay the tax on the conversion to Roth, you could wait until 2002 to make that sale, thus not increasing 2001 AGI. (This could create an estimated tax penalty, but it wouldn't be huge.)

I have suddenly realized that in my regular IRA if I don't convert and this stock does increase as expected, I will owe a large tax bill as it is distributed later in life, but my tax burden now will only be on $13,000 if I convert to a Roth IRA. I am at the point now that the stock may run, while I am trying to convert to the Roth. Will I still be able to sell during the conversion process.

The conversion "process," once it happens, is pretty much instantaneous. IOW, if you want to sell, you can sell, whether it's in your traditional or your Roth. It won't spend any time in limbo, assuming you use the same trustee for both.

Phil Marti
VITA Volunteer
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