Common Questions and Answers about Roth IRA's

1. What happens if the taxpayer thinks his adjusted gross income is un-der the $ 100,000 limit, but it turns out he is wrong?
The IRS Reform Act allows a roll back into a traditional IRA by the due date for filing the tax return (with extensions).

2. Is the conversion taxable amount added into the tax-payer's AGI for purposes of the AGI limits?
No.

3. Can a taxpayer mix conversion Roth IRA with regular Roth IRA contributions for investment purposes?
Yes, but most "forms" provided by in-vestment houses do not allow this kind of combination and the author believes it is not a good idea. The reason is that conversion Roth IRA is subject to potential additional penal-ties, and it is not wise to mix them.

4. Can a taxpayer convert part of his traditional IRA to a Roth IRA?
Yes. Taxpayers can select an amount from a tradi-tional IRA to roll over and convert into a Roth IRA. It is best as stated above to keep the two separate, although they can be commingled for investment purposes.

5. Can a taxpayer roll over from a qualified plan directly to a Roth IRA?
No. Taxpayers first must roll into a traditional IRA and then convert that traditional IRA to a Roth IRA.

6. Can a taxpayer convert her traditional IRA to a Roth IRA after 70-1/2?
Yes, but one must be sure to take out the mini-mum distribution for the year first. Under the IRS Reform Act, the minimum distribution, does not add to one's AGI upon the effective date. The required minimum distribution would not be eligible for conversion and would be included in gross income.

7. What if a taxpayer dies in the four-year averaging period (a converted Roth made in 1998)?
The income is included in the decedent's last income tax return, but the Roth IRA otherwise continues to be valid. A spouse who inherits a Roth IRA can elect to continue to pay the income tax over the four-year period.

8. Is there a way of taking funds out of an IRA with no pen-alties and four-year income averaging?
No. The IRS eliminated this loophole. The amounts are included in income.

9. Do the minimum required distributions rules, applicable to taxpayers who reach age 70-1/2, apply to Roth IRAs?
No. This is a major advantage of a Roth IRA. There are no mandatory distribution requirements for a Roth IRA during the lifetime of the taxpayer (or the lifetime of both the taxpayer and the taxpayer's spouse). However, distribution is required after death. Roth IRAs thus offer distinct estate planning advantage: A taxpayer who does not need the money can keep it in this tax-free account for as long as desirable considering tax and estate planning.

10. Is the Roth IRA safe from creditors?
No, unless provided for under state law. In most states traditional IRAs are safe from creditors, But state law may need to be changed to protect Roth IRA's.

Conclusion
Most taxpayers who qualify should consider converting to a Roth IRA. Individuals who retire may also become eligible for conversion because they may then have adjusted gross income of less than $100,000.