Does it benefit me to roll my traditional IRA in a Roth IRA if I had no income for '06?

Question

I had $0 earned income and $1500 interest and dividend income for tax year 2006. Is now the time to roll to a Roth? How is the tax rate determined? Prior year income? I have savings to pay the tax so I'm not worried about having to pay the tax with principal thus paying penalty tax also. Thanks a $$$$$$$$$$$.

Answer 1

You have missed the 12/31/2006 deadline for converting the traditional IRA to a Roth.

But if you have little or no income in 2007, be sure to take advantage of converting with little or no tax owed. The tax rate is determined by adding the amount converted to your other income.

There would be no penalty assessed on a conversion, only income tax.

Answer 2

mahal is wrong. you can convert trad ira to roth ira, but it has to be done before the end of the year. too late for 2006. unless you are going to earn a lot of money in 2007 maybe do it this year. the entire amount (principal and interest or dividend earnings) that you convert will be treated as taxable income in the year you do the conversion.

Answer 3

You can't roll a traditional IRA into a Roth until you're 59 1/2. It would be considered a withdrawal.

But there is nothing stopping you from starting another IRA, and the effect would basically be the same as what you're planning, except the traditional would still be there.