Retirement & Financial Planning Report

If your IRA is worth less now than it was a year ago because of the stock market slump, you can convert it to a Roth IRA and pay less income tax. Moreover, there’s another benefit to a Roth IRA conversion that occurs near year-end:

* Roth IRA distributions are completely tax-free, five years after a conversion, once you pass age 59-1/2.

* All 2008 Roth IRA conversions have a January 1, 2008, starting date, no matter when you convert your account. Therefore, if you convert a traditional IRA to a Roth IRA in November or December 2008, you will reach the five-year mark on  January 1, 2013. Instead of a five-year wait, you can tap the account, tax-free, in a little more than four years, assuming you’ll be at least 59-1/2 years old.

In 2008, your income must be no more than $100,000 for a Roth IRA conversion. To get the most benefit from a Roth IRA conversion, you should pay the income tax due from other assets. You’ll have more left in the IRA for tax-free investment growth.