Remember all the talk about converting to Roth IRAs? As The Wall Street Journal and others have ably pointed out but it may warrant my repeating in case you missed it the recent market drop has this silver lining: If you do qualify to convert your existing IRA to a Roth IRA (because your 1998 adjusted gross income is likely to be below $100,000), it’s now less taxing to do it. Why? Because the tax is based on the value of the IRA at the time of the conversion. If the value of your IRA has dropped 20% or 30%, so has your tax bill! (Or nearly so.) Hence, conversion may be worth another look.
There’s also this nice amendment to the tax law. If you convert thinking your income will be under the $100,000 ceiling and nuts! you get a nice bonus, you are allowed to UNconvert without penalty so long as you do so before your 1998 tax return is due (i.e., April 15). So it’s not the gamble it might have been.
For free software aimed at helping you decide whether to convert or not convert, you might check out www.owlsoftware.com.
Quote of the Day
In 1800, 75% of [an American's] working man's expenditures went for food alone. By 1850, that had dropped to 50%. Today it is a little more than 11%.~The Wall Street Journal, September 20, 1996
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