Converting to a ROTH IRA.?

Question

Last summer I left my job and returned to school to get a law degree. I have an IRA worth approximately $25,000, and my wife has one worth about $12,300. Since we expect to only have about $5,000 in income for 2007, I was thinking it might be a good idea to convert both IRA's into ROTH IRA's. Is there anything I should know or consider before doing this?

Answer 1

Now would be a good time to do the conversion because the tax rate will be at the minimum. As mentioned, you will need to pay taxes on the conversion but once done there will never be any further federal taxes due. When you do the conversion be sure to specify that no taxes should be withheld since they would then come out of the converted amount. I is best to pay the taxes from non-IRA money.

Answer 2

Right now I think you can make just one conversion from a standard IRA to a Roth IRA, but you can merge all your standard IRAs to one standard IRA. Also all that money will be taxed, so you will have to pay tax on $27,300. The remaining money will never be taxed no matter how large it grows. Unlike a standard IRA, there is no minimum date you must start to withdrawl (you must start withdrawling at 72 1/2 for a standard IRA) or minimum amount as you have to do with a standard IRA.

Answer 3

And the purpose would be what? To be able to withdraw a little? I think in order to " convert" you would have to pay the taxes ( that you did not pay with a " traditional") It would most likely be a losing proposition...
If you don't need the money for school, try to leave it alone...make any future IRA's the ROTH type....you'll have two income sources to choose from down the road.

Answer 4

The conversions is a good idea, as long as you do not need the money for school or other expenses. With a Roth there's no mandatory withdrawl's required and you can let the monies grow for the next 50 or 60 years tax free upon withdrawl.
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Answer 5

You still have to pay taxes.