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Strategies & Market Trends : Value Investing
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To: Grommit who wrote (51259)4/9/2013 12:38:30 PM
From: MCsweet1 Recommendation  Read Replies (2) of 78669
 
You can do this conversion, but my understanding is that converting to the Roth IRA you have to use the average cost basis of all your traditional IRAs, not just the $5000 contribution, so if you have an regular IRA with a low cost basis (i.e., most of the money came in pre-tax), then a good amount of the conversion will be taxable.

I did a major Roth IRA conversion awhile ago that cleared out my traditional IRAs and have been doing the 5k conversion arb every year for the past couple of years. I am just now finishing paying off the huge tax hit of the traditional IRA conversion, but the Roth account has really taken off so it looks like it is worth it. However, when Obama talks about limiting IRAs it makes me think I maybe shouldn't be so aggressive in loading up the Roth IRA going forward.

I am not an accountant, so feel free to consult one as opposed to taking my word for it.

MC
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