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Convert to a Roth IRA in Retirement?

Kimberly Lankford

You'll have to pay tax on the conversion, but all the money you withdraw comes out tax-free.

I retired this year. Would this be a good time to convert my traditional IRA to a Roth?

It could be a good time to convert to a Roth IRA, particularly if your income is lower than usual and your income-tax bracket has dropped. The key is whether you have enough money on hand -- preferably not inside your IRA -- to pay the tax on the conversion when you file your 2011 tax return next year.

There was a lot of hoopla last year about converting traditional IRAs to Roth IRAs because in 2010 you could spread the tax bill over two years. But the two-year spread is no longer an option. If you convert to a Roth IRA by December 31, you’ll need to pay taxes on the entire amount when you file your 2011 return next April.

But it’s not an all-or-nothing decision. You may want to convert a portion of your IRA each year so that you don’t boost your adjusted gross income too much in any one year. A higher AGI could jeopardize your eligibility for other tax breaks or could subject you to the high-income surcharge for Medicare Part B and Part D. That surcharge kicks in after your AGI tops $85,000 for single filers and $170,000 for married couples filing jointly.

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