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Roth IRA Conversion in a Down Market

Written by Nickel - 4 Comments

For those of you that have been thinking of converting your Traditional IRA into a Roth IRA, now might not be a bad time to do so… Since the conversion of previously deductible contributions is a taxable event, doing it when the market is down is a good way of minimizing the tax hit.

There are, of course, some caveats here…

  • Be sure that you have enough cash on hand to cover the taxes, as dipping into the IRA to cover the taxes will result in penalties.
  • Keep in mind that the additional taxable income from the conversion could push you into a higher income tax bracket.
  • Be aware that conversions are currently subject to income limitations. If your modified AGI is over $100k, you can’t do the conversion.

If your income exceeds the allowable limits, all is not lost… The income limits for Roth IRA conversions are scheduled to disappear in 2010, though it’s still important to think twice before converting.

Published on November 25th, 2008 - 4 Comments
Filed under: Saving & Investing

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4 Responses to “Roth IRA Conversion in a Down Market”

  1. 1
    Daniel Says:

    Yep, I did that a few weeks ago, glad I did too!

  2. 2
    JACK Says:

    Of course, conversion (unless it is possible to do without the actual sale of your assets) will also lock in your losses.

  3. 3
    nickel Says:

    JACK: No, it won’t. If you can’t do a straight up conversion without selling the assets, you sell in Traditional IRA and re-buy the same thing in the Roth.

  4. 4
    MIKE BERNARD Says:

    INFO ON CONVERSION OF A ROTH IRA NEEDES TO BE UPDATED. THERE IS NO INCOME LIMIT IN 2010 TO CONVERT.

    MY BAD. I DIDN’T READ TO THE END OF THE ARTICLE

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