Although it may be too late to use this strategy for 2007, those who have IRAs that they would like to convert to Roth IRAs can use such things as undeclared ordinary or charitable losses or nonrefundable tax credits to do so. This simple strategy basically allows you to essentially avoid paying taxes on what would otherwise be a taxable event by generating income against a credit or deduction that would otherwise have to be prorated or else lost altogether. There are a number of losses, credits and deductions that can be used to offset the income realized from a Roth IRA conversion. For example, if you are a small business owner and your business posts a loss of $40,000 for the year, then you could convert $40,000 of your Traditional IRA into a Roth IRA declare no income from the transaction. Or you could convert $140,000 of Traditional IRA money to Roth and still stay within the $100,000 MAGI limit (assuming that you have no other declarable income for the year, of course.) Those who are sending kids to college may be eligible for larger Hope or Lifetime Learning credits or deductions if they can declare a higher income. Obviously, a Roth conversion could be the perfect tool to provide this.

The purpose of this blog is to awaken the reader to the strategic use of Roth conversions to offset potential unused deductions or credits. Of course, the timing and coordination of your Roth conversion can be a tricky issue involving many variables. In order to reap the maximum benefit from your conversion, consult your tax advisor or your financial planner.