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Aim high, lower tax on Roth conversion

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Are you planning to convert funds in a traditional IRA to a Roth before year-end? The trick is to minimize the tax damage by bumping up against the top of your marginal tax bracket.

Strategy: Go well above the upper threshold. The tax law allows you to undo part of a Roth conversion after the fact—it’s called a recharacterization—so you’re able to reduce your eventual tax liability, if necessary.

You have plenty of time to make the necessary adjustments next year for a conversion occurring in 2015.

Here’s the whole story: With a traditional IRA, contributions may be wholly or partially deductible, but deductions are disallowed for high-income individuals. When distributions are received, you’re taxed at ordinary income rates reaching up to 39.6% on the portion of the payout representing deductible contributions and account earnings. Also, under the rules for re­­quired minimum distributions (RMDs), you must begin taking mone...(register to read more)

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