Synopsis
THE ROTH CONVERSION OPTION if you follow my advice in the next few pages, you may increase your retirement spendable assets by over 40 percent! Everyone should 1 convert all of his or her IRAs to Roth IRAs on January 4, 2010. Many articles have been written about the major law change for Roth IRA conversions beginning in 2010 . I find most of these articles vague at best, and more often than not, incorrect . Some of these articles are far more confusing than helpful . Since the inception of Roth IRAs in 1998, you could only convert your traditional or regular IRA to a Roth IRA if your income was $100,000 or less . But, starting in 2010, you can convert your regular IRAs and 1January 4, 2010, is the first date everyone is allowed to convert to a Roth IRA. If you are reading this after that date you should convert as soon as you can following the instructions in this book. other retirement plans to Roth IRAs regardless of income . Yes, you read that right everyone can now convert to a Roth starting in 2010 . And everyone should . FOLLOW THE YOGI BERRA PRINCIPLE This change in the law has all of the CPAs, financial planners, and engineers scrambling for their calculators and spreadsheet programs debating the virtue of potential Roth conversion for each situation depending on a dizzying array of assumptions about future income tax rates and the maximum number of angels that can dance on the eraser of a number 2 pencil . It is human nature to want to figure out the best answer before taking action; but this intuition is incorrect when it comes to Roth conversions . What you should do is take action, then figure out the best answer . Or to quote the great intellectual Yogi Berra, When you come to a fork in the road . . . take it . Convert first and calculate later . The general repeating theme of almost every article about Roth conversions instructs and cautions people to calculate their Roth conversion suitability before they make the conversion, implying that a good decision can be made in this order (calculate before you convert) . This premise is wrong . Dead wrong . Backwards . Figuring out if you should convert to a Roth IRA before making the conversion is putting the cart before the horse. Convert first and ask questions later using the method outlined next . Do it exactly this way and I will explain all of the reasons later . The time line for the Roth Conversion Option is as follows: STEP ONE: (January 4, 2010, 9:57 am CST or as soon as you read this.) Convert all IRAs and available retirement plans into new Roth IRAs divided by asset class or investment type . Do not combine or mix with older Roth IRA accounts for now . Keep separate Roth IRAs for assets that were in retirement plans . No single Roth IRA account should exceed 20 percent of the total . If one asset class or investment type exceeds 20 percent of the total divide it into two IRAs or more as needed . STEP TWO: (December 3, 2010 at lunchtime .) Recharacterize or unconvert any Roth accounts that lost substantial value from the conversion date of 1/4/2010 . These accounts should be converted again to Roth IRAs on January 3, 2011 at 9:57 am CST . STEP THREE: (September October 15, 2011 .) Analyze and run your conversion numbers based on all known factors including increases in Roth accounts since the conversions . STEP FOUR: (October 17, 2011, 8:30 am CST .) Unconvert or recharacterize any accounts not selected to remain Roth IRA conversions back to regular IRAs . CINDERELLA STORY As you can see, you should convert to a Roth IRA first, then run the numbers later . This is because the IRS gives you until mid-October of the year following the year of a Roth conversion to undo the conversion . This do over is technically called a recharacterization. Your Roth IRA conversion is not final or complete until you pass this deadline for unconverting.
About the Author
ABOUT THE AUTHOR John D. Bledsoe has more than 20 years experience in the financial services business. As an advisor and estate planner for some of America s wealthiest individuals, he is considered to be a leading expert on taxes and financial strategies. He is the owner of John Bledsoe Associates, which is a life insurance brokerage specializing in estate planning. John Bledsoe is also a highly sought after speaker for attorneys, financial advisors, CPAs, and general audiences. John serves as consultant to several of the largest securities and insurance companies in the nation. He has written over 1,000 financial articles for newspapers and magazines and has authored three books Rock Solid Estate Planning, Texas Living Trust, and Roth to Riches. John Bledsoe attended North Texas State University and holds a Master of Science in Financial Services (MSFS) from the American College. John has a number of professional designations including: Certified Financial Planner (CFP) Chartered Life Underwriter (CLU) Chartered Financial Consultant (ChFC) Master of Science in Financial Services (MSFS) Accredited Estate Planner (AEP) John Bledsoe lives in the Dallas area with his wife Lesa and their children Nancy, Wilson, and Jack.
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