To: SalmonMan who wrote (245 ) 6/1/1998 10:06:00 PM From: James Simonick Respond to
A ROTH conversion is similar to a load up front investment. When a traditional IRA is converted to a ROTH, you pay taxes on the amount of yet untaxed capital being converted. This is paid up front, either from the account or by cash, etc. Up front being in the tax year. For the remainder of 1998, the tax incurred can be paid over either 4 or 5 years forward. Beginning in 1999, conversion tax liabilities will be required in the tax year. I have some shares in PNLK in an IRA, some even purchased at >$5/share. If I understand correctly, the tax liability will be assessed on the conversion date. Therefore I have initiated the conversion process about 2 weeks ago. Just got off the phone with the broker. The conversion executed 5/26/98. The closing price that day should be the basis of capital gains calculations. Anyone more knowledgeable please correct if not right on target. But the lower worth should reduce all capital gains amounts back towards principal, reducing up front tax payments required. When PNLK grows in value, the conversion is already finished. With a ROTH IRA, once the tax liability is paid up front, any amount of gains is not taxable when properly withdrawn. In addition, funds can be removed after a 5 year period for the purchase of a first home, or certain other special situations. You should do DD on this option, IMHO, due to the back end tax benefits it can provide. E-trade has a calculator that can help estimate the conversion differential values. The tax free back end benefits are worth converting alone, even if the front end cap gains is found incorrect. The only other potential problem now might be timing of when news breaks. If stock goes up before conversion date, front end taxes may be higher. All in all, considering the stock in question, it may not make any difference in the long run. Hope this helps. Others, comments please?
