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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121571  
Subject: Re: Traditional vs Roth IRAs Date: 6/15/2001 9:20 AM
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Mig,

I'm sure one of the tax professionals on this board will come along soon and offer real help (I don't know if your status as overseas federal workers makes a difference).

I don't think the $12,000 you would owe in taxes is all because of the Roth conversion. If you had a small enough income to have done the conversion of $25,000, you are probably in the 28% marginal tax rate, so only $7000 of the tax you owe comes from the conversion (maybe $7750 if taxed at 31%). A lot of people think that being thrown into a new tax bracket means all of their income gets taxed at a higher rate, but it is only the portion above a certain amount that gets taxed at the higher rate.

I'm not sure if it is too late to convert back (if you are filing late, it may be okay, although I think you normally would have had to make the change by April 15--someone will tell you).

Whether or not the conversion works for you in the long run is hard to say. You pay money to the IRS now that otherwise could be saved or invested, but you would pay taxes on the interest or capital gains, and you would eventually have to pay taxes on the traditional IRA, though probably at a lower tax rate. Given your age, it depends on how soon you start withdrawing from retirement funds whether you will ever catch up by the Roth interest never being taxed. Too bad you didn't do some calculations beforehand. My wife and I plan on making money in our Roths the last money we'll touch in our lives. Given the conservative nature of your investment, it will take a long time for the Roth conversion to have been worth it, especially since the new tax laws will mean your will be paying 3% less tax on withdrawal from the traditional IRA (even if you have the same income) than you paid for 2000.

If you do decide to reconvert (and it's not too late), the very able and generous professionals here will be able to help, so you shouldn't need to hire an accountant.
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