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Subject:  Re: Rollover to Roth Date:  2/7/2007  5:20 PM
Author:  TMFPMarti Number:  91857 of 132661

I was asking if I should convert to Roth now or later. I am going to fund this account fully every year (I hope), so if I decide to convert later, I will have to pay more taxes on it, as I understand it.

Let's talk about a few basic rules. Contributions and conversions are completely separate. Thus, if you qualify for Roth contributions you can do that based on current (and even 2006 through 4/17/2007) earnings regardless of any conversions.

Second, there's no "all or nothing" rule about Roth conversions. As long as your income (without the Roth conversion income) is under $100,000 and you don't file married, filing separately you can convert $1.00 or every penny in your traditional IRA accounts, including rollovers.

In your original post you said you were in the 18% bracket. Does that include state? If not, you really should nail things down. The Federal brackets now go from 15% to 25% with no intermediate point.

I mention this because I think it would be good to convert as much of your traditional IRA to Roth that would take you to the top of the 15% bracket. This assumes that you have the cash outside retirement accounts to pay the taxes. If you're in the 25% or above Federal bracket, conversion is much more of a crap shoot. It involves a lot of crystal ball gazing to look at your compared current vs. retirement tax rates.

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