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How the IRA experts are handling their own IRAs

Is now the time to convert our traditional retirement investment accounts to a Roth account? If that is the case, how should we go about it? In this writing, those questions were asked of four IRA experts and their varying answers were documented below.

For the first time ever, taxpayers have been able to switch to Roth IRAs which offer tax-deferred benefits. Because higher taxes are an almost guaranteed in the coming years, most taxpayers are opting to pay their taxes now. In fact one company, Fidelity Investments, reported that by the 30th June, it had processed about 100,000 such conversions, which represent four times the normal conversion with relation to those of the prior year, at the same time. It can be quite a difficult decision to convert, since assumptions will need to be made on possible changes in tax laws and also possible returns on investments in the future.

The four IRA experts who were questioned on how they are handling their own IRA accounts, were attorneys Natalie Choate and Seymour Goldberg, and CPAs Robert Keebler and Ed Slott. In summary, one of the four states that he will only convert if the market should fails, while the other three have either planned to convert or have already made the conversion. All four experts feel that their tax rates will either rise or remain the same going forward, and they have no concern that a congressional bill may be passed to stop or change the Roth advantages enough to make them change their stance. Also, they stated they intend to pay conversion taxes with non-IRA funds. These preceding points they all agree on, but aside from those, their strategies are quite different.

Their strategies are as follows:

Natalie Choate – In July she converted six-figure account into a Roth account.

This conversion was in line with her usual advice to convert quickly so as to “put in the five-years”, since in order for the Roth owner to make tax-free withdrawals on the  earnings, he must have owned the account for at least 5 years and must be at least 59.5 years old. She made the conversion when the market took a dip, because she believes she would not need to undo the switch. Currently, her Roth account has risen more than 5%, and she has decided not to defer payment of her conversion taxes to 2011 and 2012. It weighs heavily on her mind that she will have to pay a  5 figure check for Federal taxes. Ironically, she always advises her clients to write those checks, and although that fear has been a great lesson to her, she will, going forward try to decide between making more asset conversions and remodeling her home’s interior.

At this moment, the remodeling seems to be the favored alternative!

Seymour Goldberg – plans to partially  convert his assets should  the market should fall. He is in his 70s, a retired professor, and currently receives 5% yield from an old TIAA-CREF retirement account. He would have to carefully consider making a conversion to a Roth, since it would mean taking assets from a growing account.

Robert Keebler – his plans are to make Roth conversions of only 20% of retirement assets prior to 2011. The remainder he will keep in the company’s pension plan which provides a better protection of assets than his state of Wisconsin gives for holders of Roth IRAs.

The asset protection law varies from State to State, and according to Robert Keebler, who states that he has never been sued, his strategy makes good sense. Keebler plans on making a conversion when next the market falls, but he intends to make the payments of his state taxes to fall into the exact same tax year of his federal tax, so as to prevent setting off alternative minimum tax requirement in the next year.

Ed Slott – He gives advice on IRAs and strongly supports the Roth product. He is 56 years old and has converted every one of his 6-figure IRAs last January. On advisement, he created six different Roth accounts, each account representing different asset classes such as real estate, health care, or energy. His intends  to closely monitor these IRAs with the plan to “recharacterize” or reverse those account conversions which either fall behind or fall in value. By law this can be done through October 15th following the date of conversion. In this way he has as much as a 21-month period to decide the accounts he should undo and even the quantity of taxes to pay. However, last January is the month used to calculate the taxes on his conversion.

He firmly believes that is the way for him to get the most for his tax dollar. However, in order to reduce paperwork, he maintained several  hundred dollars in the regular IRA account to be able to receive money coming from reversed conversions. When asked if he would opt to make a one-time deferment of his conversion taxes in 2011 and 2012, or to pay this year at the 35% rate, he responded by saying he believed that, while the tax rates may probably increase in the years to come, it is also possible that a deferral together with a six-month extension, will likely push payments of his conversion made in 2010, to 2012 and 2013. Although the deferral cannot be reversed once chosen, his decision to make that choice does not have to be done until October 2011, the time his tax return for 2010 becomes due.