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Retirement strategies

Category: Articles Published: Thursday, 26 May 2011 Written by Administrator

Roth Conversions:

Asking two questions can keep the taxman away 

By Steven Wightman, CFP
Tuesday, February 23, 2010


With no income cap for 2011-2012, many people are thinking of converting their traditional IRAs to Roth IRAs. Pause before you leap.

I think two important and often missed questions should be asked for all Roth conversions.

How much should I convert and when should I do it?

First, will the conversion push the tax payer into a higher tax bracket?

The higher bracket may be distasteful to the TP. Ask will it trigger a less obvious phase-out penalty of a tax favored behavior like paying for college or taking certain credits?

Second, what percentages of your funds are in taxable accounts? If you have non-deductible IRAs, for example, and no other IRAs, you may convert them to Roth IRAs with no conversion tax whatsoever.

Why convert to a Roth? Consider clients who have a substantial non taxable savings percentage can actually control years of their tax rate by electing tax-free as the primary income source and then the taxable second. Done right, TPs can take QRP distributions tax-free up to their tax capacity (2009 level) after considering the exemptions and deductions to income. The first dollar over that threshold would be taxed at 15%, the first graduated step.

Think realistic future taxes after considering all sources including non taxable income like Social Security and non-deductible IRAs. 

When will you have ordinary income losses to offset extra income triggered by a Roth conversion? How much will that be?

Should I elect to defer my Roth conversion taxes to 2011 and 2012 or should I pay it in the current tax year?

Answer these questions before you convert to a Roth. No worry, if you make a mistake, IRS lets you flip back to your original IRA. Do it before the annual deadline and the IRS treats the conversion like it never happened. For many, a Roth could be the road to low tax retirements and financial security.

Hands-on Retirement Planning

By Steven Wightman, CFP


Note: In life, the old Chinese proverb says, “A thousand mile journey begins with the first step.” Trouble is, when it comes to retirement planning, most of us never take that first vital step. Others start and stop - as soon as it becomes inconvenient. Procrastination ruins the best ideas. Most agree; the biggest inconvenience in life is poverty – a place where the majority of Americans end up, not because they planned to fail, but because they failed to plan and execute that plan just as an athlete does. No excuses, just the road ahead!

The purpose of this exercise is to help you arrive at a rough estimate and to get you started. The first step is a giant one in the direction of your future. To simplify, we have removed the costs associated with investing and taxes. We assume you will employ tax-deferred savings vehicles such as retirement accounts and variable annuities.

Considering that millionaires spend an average of 4 hours each month planning their finances and their future, should you? The results speak for themselves: To have the body of an athlete, you have to train regularly. To have the mind of a millionaire, you have to think and act like one – starting now. Why? From the table below, you may learn that 1 million or more is what you’ll need to save to retire and maintain your current standard of living.

Smart financial planning can yield a multiple of your total life earnings into your savings. Example: $10,000 invested in the entire stock market 40 years ago would be worth 1 million dollars today - through the miracle of compounding. For the average college graduate, cutting your taxes in half early in life can yield another million dollars in your account. You get the picture…

Bonus: One last incentive for acting now: The Federal Savings Credit is available to those who qualify (see table) for up to one thousand dollars per taxpayer in addition to your regular tax deduction for contributing to your retirement plan. Catch? You must open and fund a plan by April 15th.

Make the golden years truly golden with these easy retirement planning steps:

How much will you need?

See table B for a reality check.

Figure what you need to save each year. J/C

Choose an asset allocation

Open a retirement account and start dollar-cost averaging with monthly purchases

Pay yourself first with payroll deduction

Save 10-20% of gross income

Monitor at least quarterly

Work with a CFP Pro to coach you

Start now! First year savings allow compound-ing the longest. 10k x 40 Y = 1 million
























Most financial Institutions

Assume tax-deferred savings.


Major brokerages

Credit unions and banks offer this

Morningstar Quicken WSJ brokerages


Friend & work network

Any Brokerage firm can help you.

Some lessons from a pro: When it comes to your retirement, don’t rely on anyone but yourself, i.e. an inheritance, or a marriage, and don’t put it off! Your future is just too important to be left to chance. Today, more than ever, there are wonderful planning tools available to you in books and on the web and there are now 40,000 + Certified Financial Planner Licensees. The future is welcomed by those who prepared for it and feared by those who have not. Be the former and live a great life.











Planned retirement age?

Current age?

# Years to SAVE for retirement?

A-B =

Annual expenses?

Less annual expected Soc. Sec. dollars

Less all other annuities annually

Annual need.


Number of years you expect to live in retirement

Total estimated need?

=G x H

Total Est. funds need to save?

(C x I ) – current savings & investments

Adjusted Gross Income Limits for the Savings Credit for years 2002-6

Married Filing Joint

Head of Household

All Other Filers



$0 - $22,500

$0 - $15,000

50% of contribution

$30,001 - $32,000

$22,501 - $24,375

$15,001 - $16,250

20% of contribution

$32,501 - $50,000

$24,376 - $37,500

$16,251 - $25,000

10% of contribution

Over $50,000

Over $37,500

Over $25,000

Credit not available

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