Printer-Friendly
Email this Story
Post a Comment (0)
Depleted IRAs could have a tax benefit
Are you wondering if the beating you're taking on your IRA values could have been prevented by working with a professional financial adviser? While that question may never be answered, one ray of hope does shine in this dismal year of returns. I am talking about the Roth IRA conversion. With incomes dropping and IRA account balances down, this may be the perfect storm to take advantage of creating tax-free distributions for your retirement. Don't be fearful of repositioning for better days. I often tell my clients, "Nothing beats tax free."
Tax free income in retirement
To take advantage of the Roth conversion, your income must be less than $100,000. Establishing a Roth IRA is as simple as converting some of your funds. Interest earned in a Roth IRA must rest undisturbed for five years. This is a one-time clock; additional deposits don't come into effect on this rule, but all interest earned in the first five years must stay in the account.
All that pain, get some gain
Of course, you must pay the tax on any deposit that you make to your Roth IRA. With the extra burden put on the taxpayers from the financial meltdown, tax brackets are moving up. Maybe not in 2009, but surely by 2010.
So why am I suggesting that this is the time to consider Roth conversion? Because you are using the depleted dollars in your IRA to move into your Roth IRA. This means the converted IRA dollars are really worth more but cost less now in taxes to reposition into a Roth IRA. Then, when the stock market rebounds (and it always has) so will your account. Just now it will be in its tax-free form.
If you're in the $100,000 income tax bracket, it shouldn’t change. So in essence you are paying a small percentage more in taxes this year. Seek the guidance of a financial adviser and your tax professional to see if this technique could save you taxes now and improve your tax position at retirement.
Bender is president of AMJ Financial in Ashburn. She can be reached at 703-788-6514.
You must be logged in to post a comment.