Determining whether a taxpayer might benefit from a Roth IRA conversion.

• Author: Ellentuck, Albert B.

Facts: Harry Headache, a long-time client, seeks his tax adviser's counsel as to whether to convert the $125,000 balance in his regular IRA to a Roth IRA. Harry is married to Greta; both are age 63. Their joint 2000 modified adjusted gross income (MAGI) will be approximately $78,000. The following is a checklist of factors the tax adviser should consider when talking to Harry about conversion.

Taxpayer: -- Tax Year: --

Prepared by: -- Reviewed by: --

Purpose of this checklist: This checklist can be used as a review of the factors of a given client situation to help determine whether the taxpayer might benefit from a Roth IRA conversion. Questions with a "yes" response generally indicate a factor in favor of a Roth conversion. A "no" response normally indicates a potential problem with a conversion.

Yes No N/A 1. Will the taxpayer's joint MAGI be $100,000 or less in the year of the conversion? (If no, a conversion is not allowed.) -- -- -- 2. If married, are the taxpayers filing a joint return for the year of the conversion? (If no, a conversion is not allowed.) -- -- -- 3. Does the taxpayer understand the Roth IRA withdrawal provisions (e.g., five-year holding period, exceptions to early withholding penalties, etc.) as they relate to rollover (conversion) accounts? -- -- -- 4. Will the taxpayer's income or estate tax planning, or both, benefit from not having to take minimum distributions from the IRA beginning at age 70 1/2? A taxpayer is not required to take distributions from a Roth IRA at a certain age; the pre-death minimum distribution rules for traditional IRAs do not apply. -- -- -- 5. Would the taxpayer benefit from the ability to name new beneficiaries of the IRAs after age 70 1/2? April 1 of the year after a taxpayer turns age 70 1/2 is the deadline for selecting beneficiaries that will have a positive effect on the minimum distributions the taxpayer is required to take from a traditional IRA. Under a traditional IRA, after this date, a taxpayer can still change beneficiaries, but the new beneficiary will be ignored for purposes of the minimum distribution rules, unless he is older than the previous beneficiary (in which case, the life expectancy of the new beneficiary will cause the taxpayer's required minimum distribution to increase). Because the minimum distribution rules do not apply to a Roth IRA until the IRA owner's death, the account's beneficiary can be changed at any time (and have an effect on the minimum...