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First of all, congratulations on your thorough research -- and on accumulating $400,000 of retirement savings at age 37. I won't comment on every point you raised, but pick a few points that may be helpful.

1. For help with your state tax questions, you may wish to post a question in the newsgroup misc.taxes.moderated. At least one of the regulars there practices in Pennsylvania.

2. I would expect that if you paid state tax on $120,000 that went into the IRA, then you'll get that much out free of state tax (i.e., your taxable amount for state income tax purposes will be $280,000) but that's merely an educated guess.

3. There's also a question whether you get to spread the state tax over four years. I can't even guess on this one. If your state tax gets bunched into one year, you may be stuck with alternative minimum tax liability, although you can probably plan around this by paying some of the tax before the end of 1998 and the rest in 1999.

4. Pennsylvania is reported to be one of the "problem" states in connection with creditor protection for Roth IRAs. It's possible that you will lose whatever protection you currently enjoy (which may be only partial) when you move to the Roth IRA. If you are in a business where there is the possibility of a lawsuit wiping you out or have other reason to be concerned with bankruptcy this could be a deterrent to the Roth rollover, even if it otherwise makes good financial sense. For more on this surf to

5. As the law stands now, you are correct concerning your ability to withdraw your contributions after five years. That is also true as the law would stand if the technical corrections are enacted in their last published form. It appears likely, though, that the next version of technical corrections will be somewhat different than the last one, in ways no one can predict at this time. This should be clarified within a few weeks. You may wish to weigh the benefit of gaining more information on this point against the risk that your stocks will spike up in price during that time period.

6. The rate at which your rollover is taxed will depend on your income level over the next 4 years. For 1998 your adjusted gross income is obviously below $100,000 without the rollover, and since you own a house your taxable income should be well below that amount. Even so, part of the $100,000 income from the rollover may be taxed in the 36% bracket in 1998, and this may be true of a larger portion in later years if your income grows. (See for 1998 tax rate schedules.) The rollover may be a good idea even if this is true if you leave the money alone for a long enough period of time. But if you are serious about pulling money out after five years (rather than merely inquiring as to the level of flexibility you will have) this bracket shift may turn the Roth IRA into a net loser.

KAT in Chicagoland
Tax Guide for Investors

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