Newspaper article The Christian Science Monitor

Your Portfolio May Be Ripe for a Roth ; These IRAs Can Carry Some Tax Advantages, Especially for Those Who Have a Taken a Beating in the Stock Market

Newspaper article The Christian Science Monitor

Your Portfolio May Be Ripe for a Roth ; These IRAs Can Carry Some Tax Advantages, Especially for Those Who Have a Taken a Beating in the Stock Market

Article excerpt

All that red ink flowing from Wall Street doesn't look pretty. But it may be just the signal Americans need to take another look at converting their traditional IRAs into Roth IRAs.

"It might be a very good time to convert now," says Nicholas Kaster, author of "Saving for the Future: Roth and Traditional IRAs" and senior pension-law analyst for CCH Incorporated, a Riverwoods, Ill., provider of business and tax-law information.

"It's an especially good time to run the numbers," adds Clif Helbert, principal responsible for retirement-plan marketing at Edward Jones Investments, based in St, Louis. "If you had an IRA worth $100,000 that, because of market conditions, is worth $80,000, the tax bite is much less" for a conversion.

To understand the advantages, consider the hapless hypothetical investor Mike Morse. Two years ago, he converted his $100,000 traditional IRA into a Roth because he liked its long-term tax advantages. Although it doesn't defer taxes the way a traditional IRA does, a Roth allows retirees to pull out their money tax free, no matter how much the account has grown.

So Mr. Morse converted his $100,000 IRA, which cost him $27,000 in extra taxes. (In the 27 percent tax bracket, he owed the government for the tax deferments he'd earned when he originally invested in the traditional IRA.) Then Wall Street crashed, reducing his investment to $80,000. His IRA move proved to be a negative double-whammy.

But if Morse had waited until this year to convert, he might well have positioned himself for an impressive rebound. To begin with, his tax would total only $21,600 - a $5,400 savings, thanks to the account's lower value. And if the account doubles in value by the time he retires, Morse would reap $160,000 tax free. (With a traditional IRA, he'd owe tax when he withdrew that amount.)

Of course, timing such conversions always involves risk. …

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