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Subject:  Re: Roth IRA Contriubtions & Conversions Date:  2/2/1998  1:04 PM
Author:  vtaeger Number:  1573 of 104429

Pixy Wrote about converting from regular IRA to Roth IRA
and paying the tax from the IRA.
<<. In every case, the Roth IRA fails to match the after-tax
results of the traditional IRA. This failure is due to the lost
investment opportunity on the money she withdrew from the
converted IRA to pay her taxes on the conversion.>>

<<Conclusions Regarding Roth IRA Conversions. When
funds are taken from the converted IRA to pay income tax
due on the conversion, the Roth IRA will be an inferior option
to the traditional IRA. This holds especially true if the
withdrawal to pay those taxes also results in an early
withdrawal penalty.>>

You assume that whenever taxes are due they will be
paid at the same rate. In this case the difference between
remaining with a traditional IRA and converting to the ROTH,
paying taxes from the IRA, is due ONLY to the 10%
penalty. Without the 10% penalty staying it's a wash.

This is important. Some 60-70 year olds may want
to convert to a ROTH to avoid mandatory distributions
or for estate planning if they die before the IRA is spent.
Given your assumptions** there is no reason not to do

** The assumption of constant tax rates may be invalid.
But a 70 year old has a lot better chance of predicting
congressional whim for 20 years than a 40 year old has
for 50 years.

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