May 25, 1998

Q. My wife and I are considering converting part of our combined $575,000 in IRA accounts into Roth IRAs. We are both 62, and our combined income of $57,800 from pensions and Social Security compares with $57,000 annual expenses, which includes taxes. We have $75,000 in taxable investments, which could be used to pay the taxes on the proposed conversion. Our strategy would be to convert $200,000 to Roth IRAs, allowing those accounts to grow as an estate for our five children. The remaining $375,000 in traditional IRAs would be available for entertainment, unforeseen expenses, and to deal with inflation. The IRAs funds are now balanced among blue-chip stocks, Treasury bonds, and growth and income mutual funds. Does our plan sound reasonable?

J.P., Moody, Maine

A. Yes. Here's the basic rule of thumb for conversion to a Roth IRA: If you'll be in a higher tax bracket when the funds are withdrawn, it's a wise move.

If we project average annual growth of 8 percent in the IRA portfolio over the next 9 1/2 years -- the time at which you will face mandatory minimum IRA withdrawals -- the account would grow to $1,195,782, and your first mandatory withdrawal would be $60,363 -- more than doubling your income and moving you into a higher tax bracket. So, yes, I'd say you have a very solid plan.