wealth strategies with roth ira conversions
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Wealth strategies with Roth IRA conversions. We are living longer while “guaranteed” lifetime income sources, such as pensions, decline. The retirement savings challenge. And the responsibility for investment and lifetime income has shifted to the individual. Retirement plans and IRAs.

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Presentation Transcript
the retirement savings challenge
We are living longer while “guaranteed” lifetime income sources, such as pensions, decline.The retirement savings challenge

And the responsibility forinvestment and lifetime incomehas shifted to the individual.

how are these sources taxed
How are these sources taxed?

Retirementplans and IRAs



Up to 85% included in taxable income

Generally taxedas ordinaryincome

Taxed basedon underlying investments

taxes on traditional retirement plans

Incomefor expenses

Federal income taxes

A dollar inside a traditional (pretax)retirement savings account may onlyprovide 60¢ of income in retirement

Taxes on traditionalretirement plans
new health care taxes take effect in 2013
New health-care taxes take effect in 2013

Increase in the individual portion of the Medicare payroll tax on wages from 1.45% to 2.35%

New Medicare investment income tax of 3.8%

Will affect interest, dividends, capital gains, rental income

Distributions from retirement accounts are excluded

Interest from municipal bonds not affected

Targeted at individuals with more than $200K income (couples with $250K income)

what is the likelihood of taxes increasing even more
What is the likelihood of taxes increasing even more?

Annual U.S. federal budget surplus/deficit, 2000–2012 ($B)


Source: Congressional Budget Office, Monthly Budget Review, September 2012.

the aging of america will further strain the system
The aging of America will further strain the system

Total U.S. population age 65+

41 million

92 million



Source: U.S. Census Bureau, Facts for Features, March 2013.

new rules opened the door to roth accounts for everyone
New rules opened the door to Roth accounts for everyone
  • Beginning in 2010, anyone can convert Traditional IRA or retirement plan assets to a Roth IRA
  • Roth 401(k) accounts and conversions are now available
  • Withdrawals from Roth accounts during retirement are not taxed, assuming certain requirements are met
using the roth ira to create a tax free legacy
Using the Roth IRA to create atax-free legacy
  • You are not required to take minimum distributions at age 70½
  • Your beneficiary spouse does not have to take withdrawals
  • Non-spouse beneficiaries must take withdrawals, but the distributions are tax free
  • Paying income taxes at conversion can help lower the value of your estate if estate taxes are a concern
recharacterization the roth do over rule
Recharacterization: The Roth “do over” rule
  • This rule allows you to “undo” a Roth conversion by transferring assets back into a Traditional IRA before filing your tax return without any penalties or taxes
  • When might a recharacterization make sense?
    • Extra income from the Roth IRA conversion is too much
    • The account value has decreased from the time of the conversion
opportunities for certain small business owners
Opportunities for certain small business owners
  • Certain business losses may be used to offset income from a Roth IRA conversion
  • These are known as “net operating losses” or NOLs
  • There is no limit on how much income can be offset by NOLs
    • Unlike net capital losses, which can offset only $3,000 in ordinary income each year
  • Consult with your tax professional for more information
factors you should consider before converting
Factors you should consider before converting
  • Does a partial conversion strategy make sense?
  • Do you have assets available outside of retirement accounts to pay the taxes due at conversion?
  • Are you in a high income tax bracket now?
  • Do you expect to report significantly less incomein retirement?
  • Are you applying for financial aid?
  • Will a Roth IRA conversion affect Medicare Part B insurance premiums?
what s next
What’s next?
  • Identify all your retirement accounts
  • Talk to your advisor about a Roth strategy to provide tax-free income in retirement or for heirs
    • Does a Roth IRA conversion make sense?
    • If so, what portion of Traditional IRA assets should be targeted for conversion?
  • Consider converting assets incrementally to minimize the current tax bite



EO013 280390 3/13

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This information is not meant as tax or legal advice. Please consultyour legal or tax advisor before making any decisions.

Putnam Retail Management putnam.com