Roth coversion question (conversion, IRA, taxable, buying)

[fostoria]

Because of the free fall of property values where I live, I have been buying rental property in my self directed SEP-IRA. By the end of the year I hope to have 8 free/clear rentals in the account. I have heard that in 2010 I can roll this account into a Roth. I have not been able to do so because of the income limits. The account will have a total balance of about 700k. I also heard that the taxes can be paid over several years. Any body heard of this?

The properties generate 1200-1500 month each. I am turning 50 this year and think that in the long run, I'll be better of with a Roth considering rents and eventual appreciation.

BTW, these properties sold at the peak around 300k and are now under 90k!

[LongArm]

Yes, beginning in 2010, there are no income limits on Roth conversions. And if you convert in 2010, you can spread the tax out over 2 years (2011 & 2012). If you convert after 2010, you owe tax on the entire amount again.

[broadbill]

Originally Posted by LongArm

Yes, beginning in 2010, there are no income limits on Roth conversions. And if you convert in 2010, you can spread the tax out over 2 years (2011 & 2012). If you convert after 2010, you owe tax on the entire amount again.

Are you sure about owing taxes on the entire amount? I thought it was only earnings since they accumulated tax-free....

[LongArm]

Originally Posted by broadbill

Are you sure about owing taxes on the entire amount? I thought it was only earnings since they accumulated tax-free....

I'm talking about tax on the CONVERSION from a deductible IRA to a Roth. Tax has never been paid on money in a deductible IRA (principal OR gains), so any amount converted to a Roth will be taxable. AFTER the conversion, yes, all gains in a Roth are tax-free.