You can convert an IRA to a Roth IRA and pay all the deferred income tax. After five years and once you reach age 59 1/2, all Roth IRA withdrawals are tax-free. The catch: your gross income can’t exceed $100,000 this year in order to implement a conversion in 2002.
Even if the $100,000 ceiling on income prevents you from a Roth IRA conversion, you still can transfer depressed issues from your IRA to a taxable brokerage account. You’ll owe tax on the withdrawal but lower stock prices will hold down your tax bill. As long as you’re at least age 59 1/2, you’ll avoid the 10 percent early-withdrawal penalty.
Once those stocks are out of an IRA, you’ll enjoy benefits similar to those of a Roth IRA: subsequent appreciation may qualify for favorable long-term capital gains rates and a basis step-up at death.