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Get More out of Your Money
Dear Jeff:
Several years ago I rolled over a 403(b) retirement account into an IRA. Is it possible to convert this IRA to a Roth IRA? Would this be a good idea? I am about three years from retirement but will not need these funds for several years after retirement. Thanks for any advice you can give.
Jeff Says:
There is still an awful lot of discussion about whether or not to convert a traditional IRA to a Roth IRA. Clearly, if you decide that a Roth IRA would be advantageous for you, 1998 is the year to make the conversion because you can prorate the conversion amount over a four-year period. This reduces the amount that you must add to your adjusted gross income and, consequently, the income tax you must pay on the conversion. Thanks to technical corrections, it is no longer mandatory to prorate the conversion amount. However, for any conversions made after 1998, the full amount of the conversion must be included as income.
You are only three years away from retirement and I can infer from your question that you may need to take withdrawals several years after retirement. This leads me to believe that you should not convert to a Roth IRA. With your scenario, your Roth would not have enough time to make up the amount you will have to pay in taxes. My answer would probably be different if you would not need the money at all and you have a long life expectancy.
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