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Should You Wait to Convert a Roth?

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in Small Business Tax

Q. This year, I expect to show a huge loss from a new S corporation start-up. Should I convert my regular IRA to a Roth IRA this year or wait until the new tax breaks kick in? E.L., Portland, Maine

A. If you expect to be in a low tax bracket for 2006, this may be the year to do it. Currently, you can convert from a traditional IRA to a Roth only if your adjusted gross income doesn’t exceed $100,000. The new Tax Increase Prevention and Reconciliation Act (TIPRA) eliminates the $100,000 cap, but that doesn’t take place until 2010. Decide whether you can afford the tax hit on a 2006 conversion. Another factor to consider: TIPRA allows you to spread the tax on a conversion in 2010 over the following two years.

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