As 2002 draws to a close, there are reasons for implementing a Roth IRA conversion before year-end. At this point, you should have an idea if you’ll be eligible for a conversion this year, with income under $100,000 (single or joint return). You may qualify this year but not next year or possibly not for many years. If so, you should not miss out on the conversion opportunity now and lose out on future years of tax-free growth in a Roth IRA. (All Roth IRA withdrawals are tax-free after five years and age 59 1/2.)
Year-end conversions are extremely important if you are under age 59 1/2. Roth IRA converters under age 59 1/2 owe a 10 percent penalty on withdrawals before that age. However, converted funds can be withdrawn, penalty-free, after five years, if that comes sooner. If you convert by year-end, that five-year clock begins as of the first day of the year: January 1, 2002.
