By Elliot Raphaelson

In a recent column relating to taxes, I mentioned a change to tax law that lifts income limitations to converting traditional IRA funds to a Roth IRA. The entire amount of any conversion you make must be reported as taxable income; even so, I think it's a wise idea for many. Let me elaborate.

I am a strong believer in consistent saving in general and in tax-deferred vehicles. Individuals who invest in diversified portfolios, and rebalance regularly, will greatly increase the probability of a secure retirement.

Once you reach age 70 1/2, you can no longer make contributions to a traditional IRA. Yet more than ever before, people continue to work past the age of 70 1/2, at least part time. Any individual with earned income, regardless of age, can contribute to a Roth IRA. Investors in Roth IRAs have the same wide range of investment options as they do with traditional IRAs. There is no immediate tax advantage, but all earnings accrue tax-free, and after five years there is no penalty for withdrawals of either principal or earnings after you reach age 59 1/2.

In addition, in contrast to a traditional IRA, there are no constraints as to when you can withdraw funds. From age 59 1/2 to 70 1/2, investors in traditional IRAs and 401(k) plans have a great deal of flexibility regarding withdrawals from their retirement plans. You can withdraw as much as you want up to age 70 1/2. However, at age 70 1/2, you lose some flexibility. At that age, the IRS requires you to make minimum withdrawals. That is not a problem for the first few years. However, once you reach age 74 or thereabouts, the IRS regulations may force you withdraw more funds than you require.

Most financial planners and personal finance authors recommend that when you enter retirement, in order to make your savings last your lifetime, you restrict your withdrawals to 4 percent of your principal balance, and adjust your withdrawals each year to reflect inflation. This works fine until your mid-70s, when IRS rules require you to withdraw a minimum amount that is greater than 4 percent of the amount in your retirement plan. Each year, the minimum amount you have to withdraw increases.

Naturally, you do not have to spend everything you withdraw. You can invest any portion of your withdrawal in whatever vehicle you choose. However, you do have to pay income taxes for all of your withdrawals; and even if you do invest part or all of your withdrawal, you no longer have the tax-deferral you had in your retirement plan. For many taxpayers, especially those in lower tax brackets, it may make sense to convert some of your IRA into a Roth IRA. Discuss this with your financial planner. Some websites, such as that of the fund company Vanguard, have Web-based tools to help you determine if conversion makes sense for you.

In the same column, I mentioned that many taxpayers could use AARP-trained tax preparers at no cost. Readers wrote in to recommend another IRS-sponsored program, Volunteer Income Tax Assistance (VITA). It provides tax-preparation service free to qualified taxpayers with low to moderate incomes (generally less than $50,000 per year for couples filing jointly) as well as to disabled individuals. To find out more about this program, visit www.irs.gov and type "VITA" in the search field.

Finally, I also urged taxpayers with complex returns to consider hiring a CPA, enrolled agent or attorney to prepare their return. Let me repeat: Only hire someone who has demonstrated wide experience in tax preparation. A title is no guarantee of experience. Get references and check with the Better Business Bureau. Due diligence is key.

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Personal Finance - Is Converting Your Regular IRA to a Roth IRA a Good Idea?

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