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To avoid the spanking I sometimes see meted out here, I am asking before acting....

I retired last year at age 54 and have sufficient after tax assets to live on until I am at least 60. So this question has to do with managing my tax advantaged assets and positioning myself for the future. I have two major tax advantaged assets to consider.

I have an old fashioned defined benefit pension plan that I am grandfathered into. It has a lump sum distribution option, and is presently worth $200K. I could let it ride and it will increase in value about 5.25% per year due to the formulaic reduction in its early withdrawal adjustment. My plan is to take the lump sum now, 2006, and roll it into an existing IRA.

My IRA is worth about $400K and with the $200K from the pension, I will have $600K to work with, plus earnings. My strategy starting in 2006 is to convert as much as I can from this pre-tax IRA to my Roth. But limit the amount converted each year so as to stay within the 15% tax bracket.

So for 2006, this would be $30,650 max for 15% bracket, plus $5,150 standard deduction, plus $3,300 personal exemption. Total = $39,100.

The only other income I have will be gains from trading in my after tax brokerage account, distributions from after tax mutual funds, and interest on CD's. Allowing $10K for interest plus short term gains, and I figure I can convert $29,100 from the traditional to the Roth.

I will pay the tax each year on the conversion but no penalty, but I am figuring that 15% is about the best rate I can ever expect. After 6 years when I am 60, I will have only converted $180K-$200K over to the Roth and will still have $400K in the traditional IRA.

At that age, I will continue converting traditional to Roth each year as long as my other after tax assets hold out. Plus SS kicks in at age 62. When at some point, I need the penalty free withdrawals from the traditional to live on, I will only withdraw up to the 15% bracket limit. If I need supplemental dollars beyond that I will take them tax free from the Roth.

I live in Texas, so there are no state tax issues <woo hoo>.

So that is the grand strategy. And now my questions to you experts - Does this plan make sense? Are there any gotcha's I need to be wary of? Are there opportunities to exploit the situation that I am overlooking? Where can I find a good margarita?

Thank you for hanging in there on this long post and for all advice offered... Mike
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