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Update To February Article Discussing The Distinct Advantages Of Converting Some 401-k Assets and Traditional IRA's To Roth-IRA's in 2010

Mike A. Fisher

What Roth-IRA’s do Taxpayers have to choose from?
1. Roth-IRA Conversion
2. Contributory Roth-IRA

The tax rules are very favorable for converting existing traditional IRA's and taking in-service withdrawals from certain qualified retirement plans, ie: 401-k's, 403-b's, etc. for 2010 and processing a rollover-conversion to the Roth-IRA. Up until January 1st, 2010, only taxpayers with a Modified Adjusted Gross Income of less than $100,000 were eligible to complete a Roth-IRA conversion. The income limits have totally been removed for 2010 and virtually anyone can now convert qualified retirement assets and/or traditional IRA assets to a Roth-IRA. Why would someone want to do this? Well, qualified retirement assets such as 401-k's, 403-b's, 457-b's, TSP's, etc. are only tax deferred until such time that the taxpayer wishes to take withdrawals from their account, and then become fully taxable at regular ordinary income tax rates which obviously reduces clients' spendable income in retirement. The traditional IRA's work the same way so that when clients wish to withdraw their income, every dollar distributed becomes fully taxable income at current ordinary income tax rates. The advantage of converting these type assets now is that current IRS regulations will allow for the taxpayer to spread their taxable conversion amount over two years beginning in 2011 and ending in 2012. The initial amount of the conversion is fully taxable at current ordinary income tax rates, but once the account is converted, then any and all growth going forward essentially becomes tax-free growth that the taxpayer will never be required to pay taxes on. Of course, there are some stipulations that require the taxpayer to hold the converted account open at least 5-years or to age 59 1/2, the later of the two. Some very good exceptions to this holding rule would be disability, purchase of a primary residence, and death.

The contributory Roth-IRA rules have not changed for 2010, and there are still income restrictions for being eligible to contribute to a Roth-IRA. First of all, a taxpayer must have earned income in order to contribute to a Roth-IRA, and if the taxpayer's filing status is single and their Modified Adjusted Gross Income exceeds $105,000, then a phase-out of contributions would take place. If the taxpayer is married filing jointly and their Modified Adjusted Gross Income exceeds $167,000, then a phase-out of contributions would take place. Otherwise, the maximum amount that can be contributed to a Roth-IRA is $5,000 if the taxpayer is under age 50 and $6,000 if the taxpayer is age 50 and up. All contributions are made with after-tax dollars and similar to the Conversion Roth-IRA, the Contributory Roth-IRA has tax-free growth as long as the taxpayer holds the account open for 5-years or to age 59 1/2, the later of the two. The exceptions to this holding requirement that I listed above would be the same for this type of Roth-IRA.

With all of the bailout packages that our government has set in motion over the past year or so, our debt has risen to a crisis level in this country. Most clients believe that it is inevitable that our tax rates are going up to pay for all of this including health care reform. Therefore, why not convert retirement accounts that will ultimately cost you more at a later date in taxes as opposed to paying the tax now at what seems to be a more favorable tax rate, and then grow your investable assets tax-free? Let's keep more of what we earn! Please feel free to call us at 478-333-6611 or come by our office at 154 S. Houston Lake Road-Suite 1000-Warner Robins, GA 31088. Let’s discuss which option may be right for you.

Please stay tuned for more about Roth-IRA’s and their advantages for 2010 each quarter.

• This information should not be construed as tax advice and we recommend that you consult your personal tax advisor as to how Roth-IRA conversions may affect you.

Money Management
Matters, LLC
Mike A. Fisher- President
154 S. Houston Lake Road- Suite 1000
Warner Robins,
Georgia 31088
Phone: 478-333-6611
Fax: 478-333-6641


Mike A. Fisher Investment Advisor Representative