n any earnings and pretax contributions. This is in lieu of paying taxes upon later withdrawals from the Roth account. You should not tap your IRA to pay the conversion tax, however. If you do so before age 59 1/2, you will generally owe a 10% penalty on that amount (SmartMoney, roth iras: to convert or not). Every dollar you rollover into the Roth from the regular IRA is called a blended dollar. A percentage of the amount rolled over into the new Roth account will be taxed. There is only one exception, and that is if your IRA is worth less than the amount of your after-tax contributions. So don’t think you can avoid the conversion tax. It is not wise to convert into a Roth account now if you plan on dropping into a lower tax bracket when you retire, because you will have to pay income taxes at your current high rate instead of your lower rate after you retire. Another important fact you will need to know when converting over to a Roth is that you will only pay income tax on the difference between the account’s value on the date of conversion and the total amount of your nondeductible contributions. When you are converting your nondeductible IRA into a Roth you will not need to bother or worry bout capital gains. After converting from a Traditional IRA to a Roth IRA you may want to go back to the Traditional IRA. This is called recharacterizing. When recharacterizing the earnings from the converted amount must also be transferred back to the Traditional IRA, and the transfer must be completed by the taxpayer’s tax-filing deadline, including any extensions. There are other ways of transferring or moving one IRA to a different IRA. This method is called IRA-to-IRA Rollovers. This is the most common method used. With IRA-to-IRA rollovers there are not any age, tax year or dollar amount restrictions on transactions. With a rollover, the IRA owner takes direct possession to the assets and has 60 days to ro...
