DEADLINE NEARS FOR ROTH IRA CONVERSIONS

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

The introduction of Roth IRAs this year spurred a barrage of investor interest. One of the largest mutual fund companies experienced a 155 percent increase in new IRA business this year, more than half of which came from Roth IRAs. A leading brokerage firm whose IRA business was 300 percent higher in the first six weeks of 1998 than the same period in 1997 also attributed half of this increase to Roth IRAs. Money magazine even coined a new term -- Rothomania -- to describe the phenomenon.

The big attraction of Roth IRAs is that you can withdraw your money tax-free in the future -- a feature not offered by traditional IRAs. This has caused many investors to convert their regular IRAs to Roths. In fact, a large percentage of Roth IRA business has come in the form of IRA conversions.

If you're considering converting your traditional IRA to a Roth, be aware that you'll owe taxes. Any deductible contributions you made to your regular IRA, plus all earnings, are taxable.

There is one break, however: If you make your conversion by Dec. 31, you don't have to claim the taxable amount all at once. You can spread your tax liability over the next four years. If you convert after 1998, however, you will have to claim the full taxable amount as income in the year you make the conversion.

Should you convert your traditional IRA to a Roth? That depends. For one thing, you can't convert to a Roth IRA if your adjusted gross income exceeds $100,000. This is the limit for both single filers and married couples filing jointly. A married person filing separately cannot convert.

If you're near retirement, the taxes you pay on conversion may outweigh the tax benefits you'd receive when you withdraw the money. But younger people with small IRA balances may be good candidates for conversion, especially if they convert by Dec. 31. Just be sure you have money outside your IRA to pay your tax liability.

Roth IRAs and traditional IRAs offer different benefits. Roth IRAs feature tax-free withdrawals and no required minimum distributions. Regular IRAs, however, offer deductible contributions for many people. Whether you should convert a regular IRA to a Roth depends on a variety of factors that should be weighed carefully by you and your financial professional.

Whichever option you choose, you can be certain the tax-deferred growth offered by all IRAs still makes them one of the best retirement-planning vehicles around.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.