To Roth Or Not To Roth
by Ginita Wall, CPA, CFP

To Roth or not to Roth, that is the question. At least, that is the question on many people's minds. Here are the answers to some of the questions you've been asking about the new Roth IRAs.

Why are Roth IRAs a good deal, if they aren't tax deductible?

The only things better than tax-deductible contributions are tax-free withdrawals, and that is the whole point of the Roth. The tax-free amounts you eventually draw out will far exceed your non-deductible contributions, so the Roth will save income taxes for almost everyone who is five years or more from needing their retirement savings.

When is the best time to convert a regular IRA to a Roth IRA?

If you will have the money with which to pay the tax, and your adjusted gross income for 1998 is under $100,000, 1998 is definitely the year to convert. Because of a special rule, the tax you owe on 1998 conversions can be spread over four years. But you'd best wait until December to do the conversion, so you can be sure your income won't exceed $100,000.

What if I've already converted to a Roth, and my income is over $100,000 for 1998?

Under current law, your Roth conversion will be illegal, so you'd have to liquidate the Roth and pay taxes plus a penalty for taking an early withdrawal. Ouch!

Can I convert just the non-taxable portion of my IRA to a Roth?

If you've made non-deductible contributions to an IRA, you must apply the IRA's ratio of contributions to the total IRA when computing the tax-free portion of the conversion. For example, if you contributed $4,000 to a non-deductible IRA, and your IRA is now worth $10,000, 40% of the money you roll into your Roth IRA will be non-taxable.