Monday, September
6 2010
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Monday, September
6 2010
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Announcing a new acquisition!!
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What's New at Forte for the year 2009 January 2009 - One Good Thing about a Tough Market— It’s a Good Environment for Roth IRA Conversions By Forte News Department Most
of us will not start the New Year happy about our investments. But if you are
looking for a bright spot, it’s not a particularly bad time to consider
converting a traditional IRA to a Roth IRA. Right now,
anyone with modified adjusted gross income of less than $100,000 a year
(individual or joint income) can convert a traditional IRA account to a Roth
IRA. Higher-income Americans will get
the same break in 2010 if Congress doesn’t reverse its 2006 approval of provisions
in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). Keep in
mind that this also might be a good idea for people who were also unemployed or
disabled during the past year and therefore had lower income. Talk to your tax
professional about doing a full or partial Roth IRA conversion. Remember
that when you do a conversion, you must pay income tax on the amount you are
converting, which can be all of the funds in the traditional IRA or just a
portion of those assets. But, subject to certain restrictions, you won’t pay
tax when you finally need to withdraw your money. That’s where the silver lining comes in for you or for your heirs
if you pass that money on to them. Take
another look at your statements and how much your investments are down.
Assuming that the markets perform historically and fight their way back, your
tax-free amount available for withdrawal could accumulate significantly under
that Roth status. The
conversion issue is a potentially attractive retirement and estate-planning
idea for all Americans who want to make sure they maximize the assets they have
for themselves and for their heirs on a tax-free basis. But anyone considering
such a move—regardless of his or her income status—should first review their
current retirement asset strategy with a tax or financial adviser such as a
CERTIFIED FINANCIAL PLANNER™ professional. Things to
consider: The difference between a traditional
IRA and a Roth IRA: Traditional
IRAs allow investors to save money tax-deferred with deductible contributions
(within certain income limits if either spouse is eligible for a qualified plan
at work) until they’re ready to begin withdrawals anytime between age 59 ½ and
70 ½. Roth IRAs don’t allow
tax-deductible contributions, but they allow tax-free withdrawal of funds with
no mandatory distribution age and allow these assets to pass to heirs tax-free
as well. If you leave your savings in the Roth for at least five years and wait
until you're 59 1/2 to take withdrawals, you'll never pay taxes on the gains.
You can convert a traditional IRA to a Roth, but you must pay taxes on any pre-tax
contributions, plus any gains. Time to retirement matters: If you have more than five years
until you plan to withdraw your retirement funds, conversion of traditional IRA
assets to a Roth IRA might make sense.
The longer the time span where earnings can grow tax deferred, the
greater the benefit of being able to withdraw those earnings without paying tax
on them. Your tax rate at retirement is
important: Many
people, such as business owners, may be paying taxes now at a fairly low rate.
So they might pay higher taxes at retirement.
If that’s the case, converting to a Roth might make a lot of sense.
Additionally, with Social Security benefits being taxable at certain income
levels, Roth IRAs can allow you to limit or eliminate such taxes. A Roth conversion can be expensive: You’ll have to pay taxes on
contributions that you previously deducted, as well as taxes on the accumulated
earnings. Also, you need to be aware
that conversion could push you into a higher tax bracket, especially if you've
accumulated sizeable earnings over the years. This is why a conversion needs to
be planned with a tax expert. Why? It may trigger the Alternative Minimum Tax
(AMT) due to those high earnings. January 2009 — This column is
produced by the Financial Planning Association, the membership organization for
the financial planning community, and is provided by David W. Henion, CPA, a
local member of FPA. | ||||||||||||||
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