Ask Money

Convert to Roth

Chris Farrell Feb 5, 2009

Question: Given the current Federal deficit, and the way the U.S. Government is currently burning through money, it seems like a sure bet that tax rates will have to eventually start going up in the future. Because of this I’ve been thinking of converting my current 403(b) into a Roth IRA. And given that value of my retirement account has gone down (like everybody else’s) it seems like a good time to make the conversion. In my particular case, if I were to convert the entire amount, according to the calculators I’ve tried, I would still be able to pay the taxes and penalties for the conversion entirely from current savings. And again, given how little these savings are currently earning, it seems like good timing. What are your thoughts on doing such conversions? Bill, Durham, NH

Answer: Your basic insight is sound. A lot of people are rightly running their calculators to see if conversion into a Roth is a good financial move for just the reasons you mentioned. For many, the answer is coming out yes.

Problem is, you may not be eligilble. If this is an active 403(b) at work you can’t convert it into a Roth. You can do it if you’re no longer on the job but simply left the retirement plan alone with your former employer and the plan allows you to roll the money over into an IRA. (Before 2008 you had to roll a 401(k)-type plan into an IRA and then roll that over into a Roth. The law has been changed so that you can go straight to a Roth.) You’re also eligible If you’re over 59 1/2 and your company allows an in-service distribution.

Remember, before 2010 your adjusted gross income has to be below $100,000 to make a conversion. The same $100,000 limit applies to the overall income of couples filing jointly as singles. Those who are married but file separately can’t convert at all. (I don’t make these rules up; I’m just reporting on it).

I’m glad to see that you have other money to put toward the taxes owed on a conversion. That’s an important test to pass to see whether conversion makes sense.

The IRA laws are not simple. You can see if you even qualify for conversion at the Fairmark website. The Roth information is here (

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