Roth IRA Conversion in a Down Market
Tip It!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
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
Related articles...
» Income Limits for Converting Traditional IRA Funds to a Roth IRA» IRA Changes for 2008
» Postponing Taxes on a Roth IRA Conversion
» Traditional to Roth IRA Conversion at Vanguard
» Look Before You Leap: Roth IRA Conversions in 2010
» Opening a Solo 401(k) at Fidelity and Rolling Over My SEP-IRA
» Recovering From the Crash
» Contribute and Convert: Funding Our Roth IRAs Through the Backdoor
Was this article useful? Please sign up to receive our content via e-mail:
4 Responses to “Roth IRA Conversion in a Down Market”
Leave a Reply
Top Cards by Category
Earn $200 Bonus Cash Back after you make $500 in purchases in your first 3 months. 5% Cash Back on up to $1,500 spent in bonus categories each quarter.
Receive 10,000 Membership Rewards bonus points when you spend $1,000 in 3 months of Card membership.
Earn 3X points on airfare, 2X points on gas and groceries, and 1X points on everything else.
Earn up to 5% cash back* in categories that change and enjoy a 0% introductory rate for 15 months on Balance Transfers and 15 months on Purchases.
Enjoy no balance transfer fee for a limited time. 0% introductory rate on Balance Transfers and Purchases. Earn up to 5% Cashback Bonus in categories that change like gas, restaurants, department stores and more. Limitations apply*
Enjoy no balance transfer fee for a limited time. 0% introductory rate on Balance Transfers and Purchases. Earn up to 5% Cashback Bonus in categories that change like gas, restaurants, department stores and more. Limitations apply*
Enjoy amenities for you and your business, like: complimentary airport club access, including American Airlines Admirals Club(R) lounges.
5% Cashback Bonus in categories that change like gas, restaurants, department stores and more. Limitations apply*. Up to 1% unlimited Cashback Bonus on everything else. No annual fee
Earn 3X points on airfare, 2X points on gas and groceries, and 1X points on everything else.
Reports to 3 major credit bureaus monthly and acceptance at millions of locations worldwide, including website purchases and reservations.
- How to Become a Millionaire
- How to Get Out of Debt
- The Best Dollars I've Ever Spent
- How Our Estate Plan is Structured
- How We Paid Our Mortgage In Less than 10 Years
- Money Making Ideas
- How to Manage Your Asset Allocation with Multiple Accounts
- Consumption Smoothing - Save While the Saving's Good
- How to Save on Groceries
- How Much Life Insurance Do You Need?
- Eleven Great Books About Money
- Dave Ramsey is Bad at Math
- Dish Network Customer Service SUCKS
- $8,000 Homebuyer Tax Credit
- Pay Off Mortgage Early or Invest?
- How to Claim the First-Time Homebuyer Tax Credit
- Reduced Credit Limits? Share Your Experience
- $15,000 Homebuyer Tax Credit
- Ethanol Blended Gas = Lower Mileage?
- Termite Control: Sentricon vs. Termidor
- How Much Should You Pay a Babysitter?
- Federal Income Tax Rates Went Down but Your Federal Tax Withholding Increased. Here's Why...
- Would the "Fair Tax" Gut the Economy?
How to save money on insurance
- Double-Check Your Ally CDs
- Stocks are Not Bonds, CDs, or Savings Accounts
- The Best Values in Colleges - 2012 Edition
- Five Myths About Renter's Insurance
- Own Your Investments, Rent Your Fun
- Citibank to Issue Credit Cards in China
- Heartstrings and Pursestrings
- Saving Money at the Grocery Store: Store Brand Pricing on the Rise
- Missing Tax Paperwork?
- Is Your Investment Allocation Right?
November 25th, 2008 at 12:07 pm
Yep, I did that a few weeks ago, glad I did too!
November 26th, 2008 at 12:54 pm
Of course, conversion (unless it is possible to do without the actual sale of your assets) will also lock in your losses.
November 26th, 2008 at 1:39 pm
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.
April 7th, 2010 at 5:01 pm
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