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I have a question about converting a traditional IRA to a Roth IRA. Both my wife and I have current personal Roth IRA accounts to which we've maxxed out our contribution in each of the last few years. In addition, we have traditional IRA accounts from previous jobs.

Since our traditional IRA accounts are both in the red currently, I was wondering if it were possible to convert them into a Roth IRA or ideally into our current Roth accounts.

My wife is self-employed, so we have excess income which would be nice to shelter from taxes through a "loss." That is why I was thinking about converting the traditional IRAs.

thanks,

John
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Since our traditional IRA accounts are both in the red currently, I was wondering if it were possible to convert them into a Roth IRA or ideally into our current Roth accounts.

Yes, it's possible as long as you file jointly and your joint AGI without the income from the conversion is under $100,000. If you're under 59 1/2 you want to make sure you have the cash in non-retirement accounts to pay the tax.

My wife is self-employed, so we have excess income which would be nice to shelter from taxes through a "loss." That is why I was thinking about converting the traditional IRAs.

Hmmm. It sounds to me like you're thinking that since your traditional IRAs have lost value you have a tax loss. You don't. That money, assuming it was all pre-tax contributions, has never been taxed, so the amount you convert will be taxable ordinary income, dollar for dollar.

Since your wife is self-employed she can shelter a good portion of her earnings through a SEP contribution. Even higher deductions may be available with a different retirement plan. See IRS Publication 560.

Phil
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Oh yeah. I didn't pay tax on it in the first place. Duh.

Thanks for your prompt response and for the extra lead. I'll look into SEP plans. The Fool rocks!

- John
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