What's the right direction to take with your traditional IRA assets?Perhaps you should consider converting all or part of your traditional IRA assets to a Roth IRA.Although you would pay income taxes now on the amount you convert,the growth in the Roth IRA would be tax-deferred-and potentially tax-free.Paying income taxes now on a smaller amount may leave more for your beneficiaries when you die.

As long as you are eligible (see below for details),you might also consider converting portions of your traditional IRA over a number of years.For example,if you have a $100,000 IRA balance,you might choose to convert $20,000 per year over the next five years and pay income taxes gradually.The advantages of implementing this strategy include:

• Roth IRA withdrawals can be income-tax-free supplemental income to augment the income you're recieving through your distributions from traditional IRAs.

• Be eventually converting your traditional IRA into a Roth IRA,you can reduce or potentially eliminate mandatory distributions.

• By converting traditional IRA assets to Roth IRA assets during your lifetime,you can turn these assets into income-tax-free balances for heirs.

Before you embark on this strategy,you'll need to address several issues to determine its suitability for you.

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If you have adjusted gross income(AGI) of more than $100,000 this year,the answer is no.If you find the considerations above compel you to convert your traditional IRA to a Roth IRA and you can control the income you claim for 1999,it may be to your benefit to do so.For example,if taking a bonus in 2000 instead of in 1999 will bring your AGI to below $100.000,you may consider deferring the bonus.

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Do You Have Other Assets To Cover The Tax Liability From Converting?

Ordinary income tax is due on converted amounts in the year of the conversion.Be sure you have non-IRA assets to cover the tax liability you will incur by converting.You could be subject to ordinary income taxes and a 10% penalty if you withdraw cash from your IRA to pay the taxes.You also lose tax-deferred compounding by using IRA assets to pay taxes.

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The Roth IRA was created by the Taxpayer Relief Act of 1997.If you meet eligible requirements,you can contribute up to $2000($4,000 for a married couple) to any combinatio of traditional and Roth IRAs annually.

Roth IRA contributions aren't tax-deductible;however,you can tax-and penelty-free distributions from your roth IRA after you have held it for five years,as long as you are atleast age 59 1/2.There are no required distributions on the Roth IRA during your lifetime,and as long as you are working,you can continue to contribute even after you reach age 70 1/2.(With a traditional IRA,you must begin taking mandatory distributions at age 70 1/2 and your contributions must stop even if you are stll working.)This means your Roth IRA can pass to your heirs potentially income tax free.

You may withdraw your contributions to your Roth IRA at any time without tax or penalty.(This is true only of annual contributions-not assets converted from traditional IRAs.)If you take distribution of your earnings before you have held your Roth IRA for atleast five years and reached age 59 1/2,you may owe ordinary income tax on the earnings and a 10% penalty.