Some ways the new tax law may affect you

Staying Ahead

August 10, 1998|By Jane Bryant Quinn | Jane Bryant Quinn,Washington Post Writers Group

IT TAKES 808 pages for CCH Inc., a tax information service, to explain the new tax law. Most of the provisions are narrow. But when they affect you, they can make a big difference. For example:

reverse the transaction without penalty, as long you do so by the due date of your tax return (including extensions). To reverse it, call your Roth trustee and say you want to make the change. You'll be taxed on any money you withdraw in cash.

Why would you want to switch back to a regular IRA? Two possible reasons:

First, you might discover that your income exceeded $100,000, which makes you ineligible for a Roth.

rTC Second, the stocks in your IRA might plunge after you switched them to a Roth. If you keep your Roth, you'll be taxed on its former value; if you undo the transaction, you won't, says accountant Ed Slott of Rockville Centre, N.Y., editor of the newsletter, Ed Slott's Advisor.

4. It's imprudent to take money out of a Roth for the first five years after you convert. There's a 10 percent penalty if you're under 59 1/2 . You also owe taxes on the earnings.

If you were spreading the income (and tax) over four years, an early withdrawal foils your plans. You'll owe extra taxes in the current year.

If you die during the first five years, however, your heirs could receive the money income-tax free.

Pub Date: 8/10/98

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