IRS Puts Limits on Roth IRA Conversions

The Internal Revenue Service has made it harder for investors to lower their tax bills by switching back and forth between regular individual retirement accounts and the new Roth IRAs. In October, the IRS closed the door on a strategy that allowed investors to lower their taxes by making multiple conversions between traditional IRAs and Roth IRAs. The tax agency said investors could convert just once more in 1998 and only once in 1999. Under the new rules, a taxpayer who converts a traditional IRA to a Roth IRA in January 2000, and then decides to change it back to a regular IRA in February 2000, will have to wait until January 2001 to reestablish it as a Roth account. A taxpayer who switches out of the Roth IRA late in the year would have to wait at least 30 days to switch back. A taxpayer who changes a Roth IRA to a regular IRA on Dec. 21, 2000, must wait 30 days to reestablish it as a Roth, under the new IRS rules.