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Sidestep tax trap on future IRA conversions

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in Small Business Tax

The day may be dawning soon when you plan to convert your traditional IRA into a Roth IRA. The pot of gold at the end of the rainbow: Future distributions from the Roth will be 100% tax free. But you might be better off taking a different route to “the Promised Land.”

Strategy: Roll over funds from traditional IRAs to your company-retirement plan (assuming the plan permits it). By doing so, you won’t be clobbered by a heavy tax bill if you convert to a Roth IRA down the road. Why? Because of a little-noticed wrinkle in the IRA tax rules.

Here’s the whole story: After the Roth IRA has been in existence for five years, qualified distributions are completely exempt from income tax if they are made after you attain age 591/2, on account of death or disability or to pay for the expenses incurred by a first-time homebuyer (up to a lifetime limit of $10,000).

In contrast, distributions from a traditional IRA may be fully ...(register to read more)

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