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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75801  
Subject: Re: Can someone help, please? Date: 10/12/1999 3:47 PM
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Greetings, Beth, and welcome. You wrote:

<<I'm new to Fooldom, and have learned a lot in recent weeks jumping around this site.

As I'm trying to get my finances aligned with some of the strategies I'm reading about, I'm confused as to whether or not to convert my traditional IRA account to a Roth IRA.

I'm 29 yrs. old, and my old (traditional) IRA has about 19K in it. I've tried to use the calculator at:

http://www.calcbuilder.com/cgi-bin/calcs/IRA2.cgi/themotleyfool

but am confused on most of the questions, so I don't think I'm doing it properly.

But, logically, since I have about 30 years until retirement, it would seem that if I rolled over the 19K traditional IRA into the Roth, I'd be way ahead in $$ when I retire.

1) Is my assumption correct (ahead of the game with Roth?)>>


Provided you pay the income taxes due on the conversion with money other than that in the IRA and provided the money can stay in there for 30 years, then you will probably come out ahead with the conversion. Much depends on how you pay the taxes due on the conversion, your tax rate today versus that in retirement, how long the money can stay in the Roth, and your plans for/size of your estate. For an overview of the issues involved, see my analysis in post 1567 on this board at http://boards.fool.com/Message.asp?id=1040013000441002&sort=postdate. In your case, the conversion will probably work well.


<<2) Can I still withdraw the amount I "roll over" for educational purposes for my son's college without penalty. (I know that the contributions themselves toward Roth can be withdrawn for this)>>

Yes, once you are into the earnings you may use the education expense exception for an early withdrawal. BUT (and there's always one of those) -- The withdrawal of any earnings will be taxed at ordinary income tax rates. They will not be tax-free unless you are older than age 59 1/2 and the conversion money has been in that account for at least five tax-years at that time. Education expenses do not qualify for an early tax-free withdrawal in a Roth IRA, just a penalty-free withdrawal.

<<3) What fees/taxes can I expect to incur for this roll -over? Just taxes or taxes + a penalty?>>

No penalty applies, just ordinary income taxes on the amount withdrawn from the IRA for the conversion.

<<4) Is there a way to pay the fees/taxes using funds from the IRA itself, or does it need to be cash?>>

You could use the IRA money to pay the taxes, but then you would be taxed and penalized on the amount you use to do so. Also, doing so virtually assures the conversion will not work out to your benefit. See the link I referred you to earlier for details.

Regards..Pixy
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