This will be one of the big questions in early 2010. As you know the traditional IRA is in essence a tax delay strategy. You receive a tax deduction for the year that you make a contribution. When you take any money from the IRA you then pay ordinary taxes. No capital gains, by the way. All ordinary. If your tax bracket is lower in retirement the delayed tax strategy had an advantage. If your taxes are higher in retirement? The opposite can be said.
Enter the ROTH IRA.Generally speaking no deductions in the year of contribution but the withdrawals come out tax free. So our clients with large incomes and good saving habits would naturally love the Roth. But. If you have an adjusted gross income (AGI) in 2009 over $176,000 you cannot have a Roth. If you want to convert a traditional IRA to a Roth, you cannot do this if your AGI exceeds $100,000! So the very people that really need one can’t get one. By default those that do not necessarily need one can get one. Logical? Heck no! The government set the rules.
Enter new rules for 2010. The income rules for converting existing traditional IRA’s to a Roth IRA are being changed in a drastic manor. The $100,000 AGI limit is being removed.
Be prepared!
This is where it gets tricky. Just because “you can” does it necessarily mean “you should?” No! We will be able to help you and your friends work through the short and long term complexity related to this issue. Be prepared for an onslaught on advertising and marketing hype by mutual funds, banks and insurance companies. They will lead everyone to believe that this is good news. And the government? It could be a windfall for them. Why? Taxes will be due on the converted amounts.
Call us!
Give us a call. We will look at this from a macro perspective. There is a right answer for everyone. Please do not listen to the hype from the financial community and assume any sense of direction. Let’s get together and see what you should do. Let’s find your right answer. Stay tuned for more on this in future TIMELINES. We will also be posting new information on our Web Site www.financialarch.com
