- The Washington Times - Wednesday, November 2, 2005

Q I have an IRA account. I am not working right now. Can I roll over my IRA ac- count to a Roth IRA now? If yes, does it mean that I don’t need to pay tax at all?

A: There is no better time to do a Roth conversion than when you are not working or are between jobs. If you play your cards right, you may be able to convert your retirement account with little or no income taxes.

The federal tax code follows a progressive schedule, meaning the more income you have in one year, the higher the percentage of your income will go to taxes.

Due to personal exemptions and standard (or itemized) deductions, some income escapes taxes altogether. Once your income exceeds these exemptions, a small amount is taxed at 10 percent. The rate then bumps to 15 percent, then to 25 percent and so on until the top federal rate caps out at 35 percent.

Because of these progressive tax rates, the better job a person does in saving for retirement, the more the person can wind up giving to the tax man. Think about it. The more a person saves in IRAs, 401(k)s and the like, the higher the tax rate will be. Not so the Roth IRA. Income from a Roth IRA is tax-free.

If you are in a low tax bracket this year because of unemployment, you have the ability to convert some or all of your IRA to a Roth IRA with little or no taxes. You’ll have to report the conversion on your income tax return this year, but since you have little other income, your taxes should be minimal. And when you withdraw your Roth IRA during retirement, it will be tax-free.

Anyone who has low income this year but expects to be in a higher tax bracket in the future should seriously consider converting some or all of his or her IRAs to a Roth. The tax savings can be phenomenal.


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