“Our clients come to us for advice on how to protect their future. We take that level of trust very seriously.”
- Dan Junkin

2010 Roth IRA Conversion Update

Rollover Limits

Prior to 2010 there were income limits for “rollover” investments from a “traditional IRA.” These are completely eliminated for 2010 and beyond. Conversion is permitted only from traditional IRA accounts. The tax to be paid for making this switch in 2010 can be spread equally over 3 years (2010-2012) or deferred from 2010 to the 2 latter years.

Does a person expect to be in a lower tax bracket in a future year or will taxes be reduced?

It makes no sense to convert today and pay a higher tax rate than might be the case in a near future year. A person should not expect to pay the tax by selling part of the IRA. The amount owed for taxes should come from non IRA assets.

After conversion are there considerations as to when the funds will be available?

Two criteria must be met for a withdrawal from a Roth IRA: (1) The withdrawal takes place at least 5 years after the initial Roth contribution, and (2) One of the following applies: (a) The Roth owner’s age is over 59.5 years. (b) Disability (permanent). (c) Death of participant. (d) First-time home purchase ($10,000 lifetime cap).

What assets should be moved into a Roth IRA?

The most undervalued assets in a portfolio make the most sense to move, assuming one believes the assets will recover. It does not make sense to convert highly appreciated investments. Better to take the proceeds of the latter from a traditional IRA when a person is “retired” and needs a distribution.

Who benefits the most from using a Roth IRA?

This is definitely a case of “youth has its advantages.” The longer one has to enjoy portfolio growth, the better a Roth works. The 5 year holding rule is a real limitation for someone who has a near immediate need to pull part of the funds out to live on or for an emergency. Again, diversification is very important in handling these funds.

Roth IRA’s do not make sense for everyone, especially those who are in their highest income earning years and at maximum tax bracket with the expectation of a lower income stream in the near future.

If you have specific questions about Roth IRA’s or other investment related questions, please let us know and we will be happy to help you.

New Years Resolutions for Investors

It is about this time of the year that we make resolutions for the coming twelve months. All you have to do is stick your head into a health club right after January 1 and look at the crowds struggling with the weight machines and the treadmills – to know this is a universal human instinct.

New Year’s resolutions have several things in common. First, these promises we make to ourselves are normally not anything new. Second, they are things that we know we need to do – January 1 is just an excuse to work on them again. Finally, these promises typically revolve around the same few areas – weight, smoking, relationships, time management.

Well, there are probably some similar resolutions we might make for our investments – as we begin a new year. And the backdrop for these commitments of ours has been tumultuous, to say the least. In early to mid 2008, we began to sense that the economy was heading in the wrong direction. Fall of 2008 led us to believe that our suspicions were right – except that it was going to be worse than we thought. Early 2009, it felt like the bottom dropped out of the stock market. In March of this year, though, the stock market began to sense recovery and took off. Since then, the market is up about 60%.

If nothing more this roller coaster ride in the economy and the markets ought to prove to us that we cannot control the future – much less predict it with much accuracy. So, our first resolution ought to be: to invest for the long term. We know we ought to stop trying to time the markets. And we surely should stop reacting to them. Who among us knew with any certainty on March 9 of this year, that the stock market would suddenly change direction and head almost straight up. And by the time that move felt real to us and we decided to get in, much of the upward move was behind us.

Our second resolution ought to be to set up a well-diversified asset allocation – based upon our risk tolerance and our reward needs. We ought to stick to that asset allocation and re-balance to it as needed. 

New Year’s resolutions are not easy to make and not easy to keep. But if done properly, they will pay off in the long run. Let us at InvesTrust help you with your investment resolutions and long term plans. Give us a call if we can be of assistance.

Welcome to InvesTrust N.A.

Since 1998, we have provided our clients with the highest level of service and expertise in the management, preservation and growth of their wealth.

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