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Strategies & Market Trends : Roth IRA ideas -- Ignore unavailable to you. Want to Upgrade?

To: Colin Cody who wrote (353)	8/21/1999 4:30:00 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 388

The hidden Roth IRA conversion penalty Something I thought I should pass along to anyone contemplating a Roth IRA conversion. After reading everything I could until it all sounded like old stuff, attending seminars, etc., I decided to take advantage of the 4 year averaging for Roth conversions executed prior to December 31, 1998. I made a substantial conversion, figuring the pain of paying taxes on the conversion amount now was worth not paying tax on future gains in the Roth IRA. What nobody I asked ever told me about was the hidden penalty this conversion carried in the form of disallowed credits. With 2 kids in their first 2 years of college, I was eligible for $3000 in education credits for 1998. Pretty nice new benefit from the tax code revision, right?? WRONG!!! Although I met the income requirements for the Roth conversion, the amount converted is treated by the IRS as ordinary income for purposes of calculating limitations on credits. I lost almost the full $3000. And we're not finished yet. The 4 years I will be paying taxes on the conversion will exactly span the time my kids are attending school. Pretty hefty price to pay on top of the tax I will pay on the conversion.

To: Colin Cody who wrote (353)	9/14/1999 5:14:00 AM
From: Lan Jaron	Read Replies (1) \| Respond to of 388

Dear Colin: Thanks for your concern. I filed a complain with SEC, SEC asked Waterhouse to respond, Waterhouse canceled the last trade which was not suppose to happen. They credited my account with the difference (more than $5000). The funny thing is that Waterhouse never bother to call or write to me to explain the solution. They just sent me a few statement to cancel my buy and sell orders, pretend it never happened. They did try to provoke my right to trade on line for a couple of months, I told them I was moving my account to Dreyfus, they backed off. I can only guess that SEC place the burden on brokers to check the errors. The same thing will not happen in Schwab, DLJ because they won't let me trade when I'm over my limit in IRA. Jaron