Most people do not have the same job over the course of their career. When they switch jobs, they will most likely need to look into IRA Rollovers. In the article below, you will learn about IRA Rollovers and if they are something that might benefit you in the future.

IRA Rollovers

Article From: Money-Zine.com

In this article we are going to discuss IRA rollovers.  We’ll going to start off by briefly discussing why an IRA rollover might be necessary, as well as provide you with a definition of a rollover.  We’re then going to explain the difference between a rollover and a transfer, and finish up with some of the rollover rules you need to be aware of to prevent you from encountering any income tax penalties.

What is an IRA Rollover?

Lifetime employment is a thing of the past, and so there are two things you can be pretty sure of:

• You’ll reach a point where retirement planning becomes a priority.
• There is a good chance that you won’t finish your career with the same employer that you started your career with.

Additional Resources

IRA Rollover IRA Withdrawals IRA Contribution Limits IRA Contribution Limits 2004 and 2005

While some companies will allow you to keep anyretirement savings you have with them in their plan’s account until you reach retirement age, there is a very good chance you’ll lose some flexibility in how that money is invested.

You may also wish to consolidate your retirement plans so that you don’t need to worry about managing several accounts.  If that’s true, then one day you may need to make a decision concerning an IRA rollover.

IRA Rollover Defined

An IRA rollover is a tax-free distribution from one retirement account that is contributed to an IRA.  There are several kinds of retirement accounts that can be rolled-over into a traditional IRA, including another traditional IRA, an employer’s qualified plan such as a 401(k) plan, deferred compensation plans (section 457 plan), and a tax-sheltered annuity plan such as a 403(b).

You should always check with your plan administrator to make sure you can take a rollover from your account.

IRA Rollovers versus Transfers

There are two ways of moving money between financial institutions - performing a transfer or doing a rollover.  Most of the time, it is far easier to do a transfer than a rollover - especially if your existing plan will accommodate the request.

With a transfer you would make arrangements with another financial institution to receive funds from your current institution.  The receiving institution then sends a request to the disbursing institution requesting a transfer of funds.  This is usually accomplished via a physical check.

This type of transaction does not have to be reported to the IRS, and requires very little work on behalf of the account holder’s part.  Transfers are sometimes referred to as direct rollovers, and are not subject to the 20% IRS withholding tax - which we discuss later on.

With a rollover, the retirement funds are distributed from the disbursing institution directly to the former account holder.  This means a check is sent directly to an individual, not another institution.

Unlike a transfer, a rollover is reported to the IRS.  This is to ensure that the individual receiving this money abides by the rollover rules, and deposits the money into another qualifying retirement account in a timely manner.

60-Day Rollover Rule

In general, you have 60 days to make the rollover contribution after receiving the distribution from your traditional IRA or an employer’s qualifying plan such as a 401k or 403b.  The IRS might waive the 60-day requirement if you can demonstrate that a significant hardship or event occurred that was beyond your control.  If you want to try and get a waiver, a request for a ruling must be made and a $90 fee may apply.

Rollover Extensions

You can qualify for an extension of the 60-day rule if the deposit becomes frozen at any time during the 60 days.  There are two specific rules that extend the rollover timeline.  Both of these rules have to do with frozen deposits - deposits that are held with banks that become insolvent or bankrupt.If the distribution becomes a frozen deposit, then the time during which the money is frozen does not count towards the 60 day timeframe.  Also, the 60 days cannot expire less than 10 days after the deposit is no longer frozen.

Rollover Withholding

If an eligible rollover is paid directly to you, then the distribution may be subject to 20% withholding. This rule applies even if you are merely rolling it over into a traditional IRA.  To avoid any tax penalties, you need to rollover 100% of your account money withdrawn into the receiving account

Rollover Withholding Example

Let’s take a closer look at this withholding rule.  Let’s say that you have $10,000 in an account that you want to move to a new retirement account.  If the money is sent directly to you, then you’ll receive $8,000 (20% will be withheld).  To avoid any tax penalties, you will have to send $10,000 to the receiving account.  That means you need to make sure you have access to funds to make up for the 20% withheld.  In this example, that amount is $2,000.

You can avoid the 20% withholding by have the distribution set up as a direct rollover, or transfer, as mentioned above.  This means that the money goes directly from the withdrawal account to the receiving account.  Retirement plan administrators do this all the time, and they can help walk you through the process.

Future Contributions and Rollover IRAs

There are some benefits of keeping a rollover IRA separate from any other IRAs you’ve been funding in the past, or would consider funding in the future.  That’s because once you make personal contributions to a rollover that is not from a company-sponsored plan then you will very likely lose the ability to move that rollover to a new company’s sponsored plan.

Rollover IRA Withdrawal Rules

The withdrawal rules for a rollover IRA are exactly the same as the rules for a traditional IRA.  The contributions and earnings are taxed when withdrawn after age 59 1/2.  Any withdrawals before the age 59 1/2 are taxable and subject to a 10% tax penalty.  Withdrawals from a rollover IRA must begin by the year after you reach 70 1/2.

For more information these types of distributions, including allowed exceptions to these rules, see our publication on IRA Withdrawals.

Roth IRA Rollovers

Finally, we’d like to mention that there really is no such thing as a Roth IRA rollover.  That’s because the IRS refers to the process of rolling-over a traditional IRA to a Roth IRA a conversion.  Unfortunately, the topic of converting a traditional IRA into a Roth IRA is far too complex to discuss here.

There are worksheets involved to figure out if you qualify; there are tax and withholding implications too.  Although we attempt to take fairly complex subject and explain them in plain English, this subject is best discussed with a tax professional.  For the ambitious readers out there, you can take a look at this 100 page publication put out by the IRS - Publication 590, which thoroughly discusses the topic of IRA conversions.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

It is important to understand the value of a Roth IRA when you are planning for your retirement. Below is an article that will give you more information about Roth IRAs to help you in your decision making.

Roth:  Four Little Letters Leading to Financial Security

Written by James Lange, JD, CFP
Roth IRA Advisor

Roth IRAs and their more recent cousins, the Roth 401(k) and Roth 403(b), offer outstanding retirement and estate planning opportunities to most readers who qualify. Further, the chance to benefit from a Roth account does not end when employment ends, as Roth IRA conversions are favorable for many retirees. A significant change to the tax law effective in 2010 has the potential to significantly enhance the benefits of your retirement savings. The change which is now effective is that there is no income cap for Roth IRA eligibility for 2010. This means regardless of income, all IRA owners will be eligible for a Roth IRA conversion. Previously, only those with incomes under $100,000 could do a conversion.

If you are unsure about using a Roth plan, read on and discover how a Roth retirement plan can help provide you and your family with long-term financial security. In most cases, you will be better off and in many cases, you could start the foundation for a tax-free dynasty.

Roth IRA Contributions - Rules and Recommendations

In most cases, we recommend that you make a $5,000 Roth IRA contribution for yourself and (if applicable) a $5,000 contribution for your spouse for 2010. If either you or your spouse is over age 50, these amounts are increased to $6,000.

According to Roth IRA rules, to qualify for the maximum contribution, married taxpayers filing a joint return must have combined Adjusted Gross Income (AGI) of less than $166,000 (for 2009) or less than $167,000 (for 2010) and your earned income must be at least as much as the amount you want to contribute to the Roth IRA. For singles, you must have an AGI of less than $105,000 and an earned income of an amount at least equal to the contribution amount.

If you are wealthy and have qualifying children or grandchildren (i.e., the children are earning at least $5,000), please consider giving any eligible child or grandchild a gift of $5,000-with the stipulation that he or she should put the money into a Roth IRA for themselves.

Why is a Roth IRA Better than a Regular IRA?

Roth IRAs, with a few exceptions, grow income-tax free and owners are not required to begin taking minimum distributions at age 70½. Your Roth IRA can continue to grow tax-free for as long as you, or possibly your children or grandchildren, own it.

Regular IRAs grow tax-deferred, and both the original investment and the growth will be taxed when the money is withdrawn.

The disadvantage of the Roth IRA is that you do not receive a tax deduction when you make a contribution. In effect, Congress is taxing the seed (your contribution), but you reap the harvest (your withdrawals) tax free. In contrast, with a traditional IRA, you are not taxed on the seed, but your harvest is taxed.

The exception to our preference for the Roth over the regular IRA would be when you can anticipate that your income tax bracket will be lower later. However, even with a lower tax brackets in retirement, the Roth IRA can still be a better choice unless a short investment period is anticipated.

Roth IRA Conversion

Now that the $100,000 income limit is gone, you should give serious consideration to converting at least a portion of your current regular IRA to a Roth IRA. For most clients, we generally recommend a partial conversion. Making the conversion does require paying taxes on the converted amount to the extent it produces taxable income and larger conversions can result in taxes at higher rates. But, taking that tax payment into account, a strategic amount of conversion provides a dramatic increase in long-term benefits to your family.

How much better off are you? In the simple example graphed below using consistent tax rates, if you convert $100,000 today, then in 20 years, you are $51,227 ahead (using reasonable assumptions too lengthy to list).

But, then please consider this scenario: what if you die 20 years after you make the conversion and you opt to leave the Roth IRA to your 55-year-old child?

How much better off is your child? $1,537,493. To be fair, that is in future dollars. The present value of the benefit to your child or children in today’s dollars is $260,963 adjusted for 3% inflation.

But, what if you instead decide to leave the Roth IRA to your 25-year-old grandchild?

How much better off is your grandchild? $2,555,058. Again, to be fair, that is in future dollars. The present value of the benefit to your grandchild or grandchildren in today’s dollars is $433,678 adjusted for 3% inflation. This is a greater advantage than for the children because the younger grandchildren have lower required minimum distributions and thus more tax-free growth than do the children.

What if the Tax Rates Go Up?

You will be ecstatic that you made the conversion. If you convert when taxes are lower and cut taxable income when taxes are higher, the benefits of the conversion will be much better than the graphs indicate.

What if We Abolish the Income Tax?

Oops, your hot air balloon will be deflated. You would have paid income tax for nothing.

Estate Planning for Roth and Regular IRAs

While conducting your estate planning, please keep in mind that it is not your will or living trust that establishes who will inherit your IRAs, Roth IRAs and retirement plans. Those determinations are controlled by the beneficiary designations that you have chosen for each of these specific plans. Many readers have complicated wills, but they make the mistake of not doing the same depth of planning when specifying their IRA and retirement plan beneficiaries. IRA owners and retirement plan participants should consider whether they need sophisticated IRA and retirement plan beneficiary designations, in addition to sophisticated wills or living trusts. An integrated tax-savvy approach including wills, trusts and retirement plan beneficiary designations will dramatically increase the amount of the funds retained by the family.

Discover the wealth-building power of a Roth IRA!

James Lange, CPA, JD, is a nationally recognized tax and retirement and estate planning attorneywith a thriving practice in Pittsburgh, Pennsylvania.  He is also the author of the bestselling book Retire Secure! Pay Taxes Later:  The Key to Making Your Money Last as Long as You Do. He offers well researched, time tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans.  His plans include tax-savvy advice, will and trust preparation, and intricate beneficiary designations for IRAs and other retirement plans.  Jim’s advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendation frequently appear in the Wall Street Journal,  and his articles have been published in Financial Planning, Kiplinger’s Retirement Report and The Tax Adviser.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

There are a number of questions that need to be answered in order to put together a long-term investment strategy that will align your risk tolerance with your portfolio. We invite you to watch this short video that discusses these questions.

You can schedule a complimentary portfolio review with one of Paragon’s financial advisors if you have additional questions about aligning your portfolio with your risk tolerance.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Your investment risk tolerance is the amount of stress you experience when your account declines. If you invest too aggressively for your risk tolerance, then at some level of decline you may reach a breaking point. When that point is hit, many investors feel the need to sell their investments in order to protect themselves. As a result, they make the classic mistake of selling out right at the market bottom just before the market rebounds. This causes them to lock in their losses and miss out on future gains.

We invite you to watch this video and then take a short 10-question survey to determine your risk tolerance.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

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Written by Nathan White, CFA, Paragon Wealth Management

People often wonder how they can be successful investors and build wealth.

To reach these goals we have outlined seven steps (also known as the Seven Steps to Building Wealth):

1. Start investing now

2. Spend less than you earn

3. Avoid unnecessary debt

4. Hire a competent financial advisor

5. Follow a sound, long-term strategy

6. Avoid large losses

7. Be patient

These steps can help you avoid and overcome the multitude of barriers that prevent people from becoming successful investors. In fact, these barriers are so significant they prevent most people from investing profitable or deter them from investing altogether.

My goal is to help you recognize and understand these barriers in order to beat them.

Consider the following quote attributed to Alexander Graham Bell,

“The most successful men in the end are those whose success is the result of steady accretion. It is the man who carefully advances step by step, with his mind becoming wider and wider — and progressively better able to grasp any theme or situation — preserving in what he knows to be practical, and concentrating his thought upon it, who is bound to succeed in the greatest degree.”

In order to assist you in your investing endeavors, I would like to identify three main barriers to successful investing:

1. Behavioral barriers

2. Industry barriers

3. Market movement

BEHAVIORAL BARRIERS

Psychological and behavioral traits affect individuals’ investment decisions. Unrecognized, these behaviors can lead to poor investment performance and/or financial disaster. The following are some behavioral barriers that individuals create (source: SecondOpinions.ca):

Expectations- Many individual investors have unrealistic expectations about returns in the market and long and short term risk.

Emotional- The fear and greed many investors experience often clouds their judgment and leads to poor investment decisions. Many investors sell when or after the market has gone down and only buy after or when it is moving up (Does buy high, sell low sound familiar?).

Overconfidence- Many investors overestimate their ability to outperform the market and thereby take on too much risk.

Lack of Knowledge- Many investors believe the key to successful investing is simply buying and selling the right stock or mutual fund. This demonstrates a lack of basic understanding of investment and risk management techniques.

To be continued next week…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

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With less than 10 days until the tax deadline for 2009, its not too late to trim your tax bill. One way to do this is by making sure you have fully funded your IRA.

The IRS has provided the following tips for those contributing to an IRA. 

Ten Tips for Taxpayers Contributing to an Individual Retirement Plan

Taken from irs.gov

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.

2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2009 must be made by April 15, 2010. Additionally, if you make a contribution between Jan. 1 and April 15, you should designate the year targeted for that contribution.

3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.

4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.

5. For 2009, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who are 50 or older or the amount of your taxable compensation for the year.

6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.

7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contribution or if you deduct an IRA contribution.

8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.

9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation, however, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.

10. Refer to IRS Publication 590, for more information on contributing to your IRA account.

If you have additional questions, or would like to make your 2009 IRA contribution, please contact an advisor at Paragon Wealth Management at 800-748-4451.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

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istock photo

If you are thinking about converting your traditional IRA to a Roth IRA in 2010, you may want to consider the pros and cons. Below is an informative article about this topic written by Darrell J. Canby.

 

FINANCIAL SENSE: Roth ‘n’ Roll in 2010

By Darrell J. Canby/Local columnist

November 23, 2009

Unless Congress passes legislation to alter the current law before the end of the calendar year, the potential for Roth IRA conversions in 2010 is vast.

Roth IRA conversions are not new. However, until now only taxpayers whose income was less than $100,000 were eligible to convert traditional IRAs to Roth IRAs. Effective in 2010, there will be no income limitation. As a result, many people should review their situation to determine if a conversion would be beneficial for them and would help them achieve their long-term financial goals.

To determine whether a conversion would benefit you, consider the differences between traditional IRAs and Roth IRAs. Contributions to traditional IRAs are tax-deductible, within certain limits, during the year the contribution is made. Income taxes are deferred on earnings. Income is taxable when funds are withdrawn from the traditional IRA.

For many people, Roth IRAs offer a better opportunity. Funds are contributed on an after-tax basis, but they can grow on a tax-free basis and taxes will never be due on Roth earnings, as long as the assets are held in the Roth IRA for at least five years and any withdrawal occurs after the individual reaches age 59 1/2.

Tax landscape
This advantage is especially important because taxes are scheduled to increase.

Earlier in this decade, tax legislation was enacted that, among other things, lowered individual income tax rates and raised the asset level at which an estate would be taxable. The law also provided that the estate tax would be zero in 2010. It then provided that, effective in 2011, individual income tax rates would revert back to pre-legislation levels, the exemption for estate taxes would decrease to $1,000,000 and estate tax rates would increase back to a maximum rate of 55 percent. The same legislation eliminated the income limitation for Roth IRA conversions.

Unless Congress changes the law, taxes will increase automatically. If you pay taxes at a 25 percent rate today, you will be paying at a rate of 28 percent in 2011; the next two brackets will increase by 3 percent as well, and if you pay at the current maximum 35 percent rate, your rate will increase to 39.6 percent.

In addition, further tax increases may be necessary. This year’s deficit alone is projected to be $1.4 trillion. Billions spent on the financial crisis, plus potential spending on healthcare reform, could result in a future tax increase. So your tax rate could be higher in years to come than it is today.

The amount of a Roth conversion creates taxable income. For conversions in 2010, the tax can be paid as part of your 2010 tax return at the rates in effect for 2010. You can also choose to report the 2010 conversion income 50 percent in 2011 and 50 percent in 2012 and pay tax at the prevailing rates at that time. Keep in mind that the rates in 2011 will automatically be higher unless Congress changes the provisions of the current law.

In order to enjoy the tax free benefits of a Roth IRA, there is a waiting period of five years and upon distribution, you must be at least age 59 1/2. So if you execute a conversion on Jan. 1, 2010, you need to wait until Jan. 2, 2015, before taking a distribution to insure the distribution will be tax free.

Advantages of Roth conversions
So what are the advantages of converting to Roth IRAs? Should you convert some or all of your IRA assets to Roth IRAs? Should you convert all in one year or over several years?

It would be wise to consult with your tax adviser to answer these questions, but the following factors are key:

Tax free build-up of converted assets. The major advantage is that all of the growth in value of the Roth IRA from the conversion date will be tax free forever, as long as you meet the five year rule and are at least age 59 1/2 when you take distributions.

Hedge against increasing tax rates. If tax rates increase, keeping your assets in a traditional IRA may mean you will pay higher taxes on the future distributions than the rate you may pay now on the conversion.

The performance of your portfolio. If your portfolio lost a lot of its value in the recent bear market and has not fully recovered, you can save on taxes by converting now, before your portfolio recovers, because taxes will be based on the value of your IRA at the time of conversion.

Allows for tax diversification in the future. You could take a portion of your income needs from a traditional IRA and some from the Roth IRA to avoid going into a higher tax bracket. You can also use this flexibility to keep the taxation of social security to a minimum and to potentially lower your costs for Medicare.

Increase in taxable income could absorb losses. Some people have experienced business losses in their S Corporation, partnership or LLC that could be used to offset the income associated with a Roth conversion. There also may be some people that have large charitable contributions that were limited due to their income. The income associated with a Roth conversion could be offset in part by these deductions.

Required minimum distribution eliminated. When you reach the age of 70 1/2, you are required to take a minimum distribution from your retirement assets in most cases. Required minimum distributions were relaxed in 2009 due to the financial crisis. Minimum distributions are not required for Roth IRAs. Some people do not wish to take distributions, because they want them to grow for the benefit of their heirs. Roth IRAs allow taxpayers to save for this objective.

Your age. If you’re young and have many years until retirement, Roth IRAs are especially attractive, because your investments should be able to grow tax-free for many years before you use them.

Legacy asset. If you leave your children a traditional IRA asset, they will be responsible for income taxes as they make withdrawals. If they inherit a Roth IRA, there will be no income taxes, so it will be less of a burden on their children.

Disadvantages of Roth conversions
While it is important to consider all of the potential advantages of Roth IRAs, you should also be aware of the disadvantages.

Immediate tax cost. There is an immediate tax cost that reduces your investment assets available for your retirement.

Tax at a higher rate. The conversion amount produces income that may cause the effective tax rate to be higher, due to phase outs of certain deductions.

Insufficient assets outside of retirement plans to pay the tax. The general rule is that you do not want to use retirement plan assets to pay the tax associated with a Roth conversion. So if you do not have assets outside of retirement assets, you probably should not consider a Roth conversion. As with any of this advice, you should consult a tax professional to be sure.

Tax rates will be lower in retirement. Your situation may suggest that your income tax rate may be lower in retirement. You would not want to pay tax now at a higher rate than you would otherwise be paying in retirement.

Need to have distributions prior to five-year waiting period. If you will need to make withdrawals from your IRA assets within five years, you will not want to have to use any converted assets. Keep enough assets outside of the Roth to avoid such a withdrawal need from that account.

Your age. If you have attained a level of maturity that would limit the amount of time for the tax-free benefits, you may not have a significant advantage from a conversion.

Your tolerance for risk. If your IRA money is invested in low-interest certificates of deposit or other investments that are expected to earn little, you’re likely better off keeping your money where it is and deferring taxes.

Recharacterization
An IRA that was converted to a Roth IRA can be recharacterized back to a traditional IRA before a timely filed tax return. For example, if you converted $10,000 of your traditional IRA to a Roth IRA on Jan. 15, 2010, you could convert that back to the traditional IRA by April 15, 2011, (or as late as Oct. 15, 2011, if you filed a proper extension of time to file your 2010 return). So if you did execute a conversion and decided it was a mistake, the opportunity to convert back is available. A timely recharacterization avoids paying the tax on the conversion.

Summary
This is a complex area with many implications. Therefore it is best to consult with your tax adviser before making any moves. Weigh the advantages and disadvantages to determine if a conversion is in your best interest.

It may be best to convert some, but not all, of your retirement assets to Roth IRAs. One reason is to start the five-year waiting period, because once it is completed you can alleviate that requirement on conversions in the future.

Another reason to have both a taxable IRA and a non-taxable IRA is that it allows you to combine the two as part of a tax strategy to lower your overall taxes. Taxes on 401(k) plans and traditional IRAs, for example, are deferred until income is distributed. You can take income from these tax-deferred retirement accounts up to the point where you would be entering a higher tax bracket, and then you can take additional distributions from your Roth IRAs without incurring additional taxes.

For many taxpayers, it will make sense to convert as much as possible to Roth IRAs in 2010. The younger you are when you convert your IRAs, the longer the timeline during which they will be able to grow tax-free.

Congress will be looking for new sources of revenue, thus rules for Roth IRAs could change, making them less attractive. Roth IRAs may be too good to last.

Darrell J. Canby, CPA, CFP^@, is president of Canby Financial Advisors, LLC, a registered investment adviser at 161 Worcester Road, Suite 408, Framingham. He offers securities as a Registered Representative of Commonwealth Financial Network, Member FINRA/SIPC. He can be reached at 508-598-1082 or dcanby@canbyfinancial.com.

This communication is strictly intended for individuals residing in the states of AZ, CA, CO, CT, DC, DE, FL, MA, ME, MI, NC, NH, NJ, NY, OH, OR, RI, TN, VA, VT, WA.  No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.

Due to regulatory requirements, I am unable to respond to any comments posted to this site.  If you would like to contact me, please e-mail me at my address above.

Visit http://www.metrowestdailynews.com/business/x1945263240/Roth-n-roll-in-2010 to see the original article.

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As we recover from the worst bear market since The Depression, many investors wonder how they will ever be able to start or continue contributing to their investments. The following article, taken from the Simple Dollar blog, outlines simple and realistic steps anyone can take no matter their age or financial circumstances.

Investing Isn’t Just for Rich People: Five Ways Anyone Can Reap the Rewards of Investing

Written by Trent at The Simple Dollar

Quite a few readers simply tune out when I mention investments. They don’t believe the topic applies to them at all. “How can I possibly worry about investing when I can barely put food on the table?” they’ll ask.

The answer is simple: virtually every single person has the resources with which to begin investing. It may seem impossible for some to believe, but it’s true.

If you make purchasing decisions in your home, you have all you need to begin investing. Choose some generic items instead of the brands you usually buy and start your investing with the dollars you save.

If you ever spend money on entertainment, you have all you need to begin investing. Instead of renting a DVD at the Redbox, stop by your library, check out a movie for free, and put aside that dollar you save. There are countless other little ways to shave just a little bit here and there without changing your lifestyle.

If you use electricity, you have all you need to begin investing. Air seal your home or put in a programmable thermostat and you’ll see a significant drop in your energy bill, with which you can invest.

It all starts with the littlest of choices.

Here are five simple steps anyone can take with that savings

1. Participate in your employer’s retirement plan. More than 90% of the employers in the United States offer a retirement plan. Many of those plans offer matching funds, in which the employer will make contributions to the plan if the employee does as well. Plus, this money goes in before taxes, meaning for every dollar you put in, it reduces your paycheck by substantially less than a dollar - and it also reduces your income tax at the end of the year. If you have a retirement plan at work and are choosing not to even consider using it, you’re choosing poverty.

2. Start an automatic savings plan. If you’ve found a way to cut your spending by even a quarter a day, you have enough to start. Set up an automatic savings plan and transfer whatever you’ve saved to a savings account each week or each month. Even $10 a month - about $0.30 a day - is a great way to start, as it will add up to $121 or so over the course of a year and continue to earn interest beyond that.

3. “Snowflake” into a savings account. If you discover useful one-time ways to save or to earn a little bit more money, don’t spend it frivolously on something you want in the short term. Instead, take that little amount - the $10 you found in the parking lot, the $7 you saved buying toilet paper in bulk - and put it right into your savings account. Even better, just start a jar for it, throw that snowflake right into the jar, then take it down to the bank when the jar is full.

4. Save windfalls instead of spending them. What about when something bigger and unexpected comes along? A relative dies, leaving you an unexpected sum. You get a settlement. You win a large cash raffle. Sure, feel free to celebrate with a little of that windfall, but instead of blowing through the whole thing like a snowblower through powder, put most of it into your savings.

5. As your savings grows, buy a CD - and then grow from there. Once you hit your bank’s minimums for purchasing a certificate of deposit, do so. This will earn you quite a bit more interest than you were earning in your savings account, but it will “lock up” your money for a while. That’s a good thing - since you’re not intending to spend it anyway, locking it up is just fine.

Congratulations, you’re an investor. When that CD matures and you couple it with your additional savings, you may have enough to start branching into other investments. Hold onto that money - when opportunity comes your way, you’ll have exactly what you need to jump on board.

All this takes is a dollar a day.

Visit The Simple Dollar to read the entire article.

photo by Philip Klinger

Third Quarter 2009 will be remembered as one of the most eventful periods in stock market history. One year has passed since the weekend that shook the foundations of Wall Street and the global financial system. Lehman Brothers collapsed, Merrill Lynch vanished as an independent entity, and AIG was taken over by the U.S. government. Almost two years have passed since the Dow Industrials hit its all time peak of 14,164.

Beyond the issues facing the global economy, there are many underlying positives that give cause for optimism looking forward.

The following article from The Simple Dollar discusses the stock market rebound and why we are optimistic.

Since mid-March, the S&P 500 is up almost 58% and the Dow Jones Industrial Average is up almost as much. If you opened your retirement savings at the end of the first quarter this year and looked at the numbers with a cringe, it’s likely that if you looked at the numbers right now, you’d feel significantly better.

Why the big rebound? To put it simply, the greater world finally realized that the only thing we had to fear was fear itself. The economy didn’t collapse. Instead, we just find ourselves in the middle of - and perhaps moving towards the later stages of - a rather strong recession.

Naturally, as the economy begins to slowly come out of a recession, the stock market goes gangbusters. Companies are beginning to reawaken and slowly increase production, a radically different picture than the massive cost cutting of the past year. Unemployment is somewhat stable - it might go up a little more, but it’s no longer on the rocket ship that it once was.

In short, we’re getting through this and we see sunlight at the end of the tunnel.

What does this mean for you and me, as small individual investors? Does this mean we should convert all of our investments into stocks and ride the rocket ship?

To put it simply, no, it doesn’t.

Hedging your long-term investments on what you think the stock market (or any investment market) is going to do in the short term is called market timing, and it’s never a good idea.

My philosophy is simple, and it’s one that was taught to me by many, many wise investment writers and investment books: unless you’re a day trader or spend a significant amount of time daily studying the stock market, you’re a long term investor, and long term investors have nothing to gain from trying to time the market.

Simply put, the vagaries and complexities and huge sums dealt with on the stock market each and every day, with so much insider information floating around and individuals playing all kinds of manipulative gains, plus the total uncertainty of day-to-day world events (if you recall, for example, 9/11 was wholly unexpected), makes it a very unsafe place for the typical person trying to save for retirement or for another long term goal. Instead, their reward is to simply look at the stock market as a long term place to put their money for a long term investment with a payoff date more than ten years down the road.

It’s all about your goals and your risk tolerance. It has nothing to do with what’s going on today, tomorrow, or next week.

Don’t let yourself be swayed by huge positive returns in the short term - or huge negative returns in the short term, either. Just stay the course with what you’re doing. If you find that the stress of such swings makes you nervous, redirect your future contributions to something with lower risk, like bonds.

Otherwise, just let things ride. Tomorrow might bring a huge unexpected event that we can’t see coming - or that some CEO is keeping under wraps for now. Given time, the stock market will correct itself from that, but over the short term, it’s basically little more than gambling unless you have the time and resources to devote yourself to truly careful study - or you’re investing with a small sliver of your portfolio that’s there solely to play around with.