Help Clients with ROTH Conversions & Make More $$$$ in 2010

[mmov1997]

There's lots of great info out “on the streets” on ROTH Conversions with the new changes for 2010. Two of the most significant changes in the tax law for 2010 are:

1. Anyone, regardless of their level of AGI can convert their traditional retirement plans to a ROTH.
2. If elected in 2010, you can pay half the tax due upon conversion with your 2011 tax return and the other half with your 2012 tax return.

A lot of the guru's out there have and will be talking about how you can and should get your clients to convert. Given that we are experiencing one of the lowest marginal tax rates in a long time and tax rates are DEFINITELY headed up from here, they have a point that most everyone should be looking at taking advantage of the opportunity in 2010. I especially like the ablility to "spread the tax over a 3 year period" - 1/2 paid 4/15/12 and the other half paid 4/15/13.

What most of the guru's will not be talking about is how to deal with the tax due upon conversion. I have a unique solution I'm working on with my clients to help them go through the conversion, manage the converted ROTH in such a way using "safe money strategies" to position the ROTH so that within 5 years, the ROTH has experienced enough growth to pay the tax due from the conversion. Net result is you could show your client how to go from a $1M Fully Taxable IRA to a $1M Fully Tax Free IRA in 5 years or less without having to necessarily pay for the tax due from conversion from "Hip National Bank."

You can NOW help your clients earn high fixed rates of return (anywhere from 8% to 13%) on their retirement accounts to pay the tax due from their ROTH conversion. The fact that as an advisor you can get compensated for helping them do this isn't bad either.

If interested, you can learn more by logging onto Zero Tax Roth: Thanks for Responding to our Email message

To your success!

 

[GreenSky]

When posting something that is obviously a C/P from another site, please take a look at the preview function.

You can remove the coding from being visible in your post so you won't look like a complete fool.

Rick

 

[padthaiforlunch]

If elected in 2010, you can pay half the tax due upon conversion with your 2011 tax return and the other half with your 2012 tax return

... I especially like the ablility to "spread the tax over a 3 year period" - 1/2 paid 4/15/12 and the other half paid 4/15/13.

You got it wrong. If spread over two year you will pay your the tax on your 2010 and 2011 returns. Due dates are 2011 and 2012.

What most of the guru's will not be talking about is how to deal with the tax due upon conversion. I have a unique solution I'm working on with my clients to help them go through the conversion,

LOL. Sorry, just because some agents aren't aware of how to ladder annuities doesn't make your solution 'unique.'

I'm not going to post conversion strategies on this board, but if anyone is interested in who to do this, send me a PM.

 

[mmov1997]

You got it wrong. If spread over two year you will pay your the tax on your 2010 and 2011 returns. Due dates are 2011 and 2012.

Padthaiforlunch,

I believe you're the one who has the rule wrong. Once the election is made in 2010, half the income is included with your 2011 tax return due 4/15/12 and the other half of the income is included with 2012 tax return due 4/15/03.

I don't think myself as a CPA, Ed Slott also a CPA and EquityTrust Co a TPA have this wrong.

Below is from Ed's Slott's website:

For 2010 conversions only, the income from the conversion will be included ratably in your income for 2011 and 2012. What that means, for example, is that if you do a conversion of $100,000, then $50,000 will be included in your 2011 income and $50,000 will be included in your 2012 income. The taxes on your 2011 income are due by April 15, 2012 and the taxes on your 2012 income are due on April 15, 2013

Below is from EquityTrust site:
[FONT=Arial, Helvetica, sans-serif]Important Tax Considerations for the 2010 IRS Rule [/FONT]
[FONT=Arial, Helvetica, sans-serif]Keep in mind that when converting to a Roth IRA, you will owe taxes and that if you have several retirement accounts, additional taxes could apply.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The good news is that under the new 2010 IRS rule, if you convert an existing retirement account to a Roth IRA, in 2010 only, you can split the converted income amount between 2011 and 2012, which means that you would not pay any taxes in 2010 on the amount converted.[/FONT]

Below is directly from "The Code"

SEC. 512. CONVERSIONS TO ROTH IRAS.

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H.R.4297

Tax Increase Prevention and Reconciliation Act of 2005 (Enrolled as Agreed to or Passed by Both House and Senate)
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SEC. 512. CONVERSIONS TO ROTH IRAS.

• (a) Repeal of Income Limitations-
  • (1) IN GENERAL- Paragraph (3) of section 408A(c) (relating to limits based on modified adjusted gross income) is amended by striking subparagraph (B) and redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.
  • (2) CONFORMING AMENDMENT- Clause (i) of section 408A(c)(3)(B) (as redesignated by paragraph (1)) is amended by striking `except that--' and all that follows and inserting `except that any amount included in gross income under subsection (d)(3) shall not be taken into account, and'.
  (b) Rollovers to a Roth IRA From an IRA Other Than a Roth IRA-
  • (1) IN GENERAL- Clause (iii) of section 408A(d)(3)(A) (relating to rollovers from an IRA other than a Roth IRA) is amended to read as follows:
  • • • `(iii) unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.'.
  • (2) CONFORMING AMENDMENTS-
  • • (A) Clause (i) of section 408A(d)(3)(E) is amended to read as follows:
  • • • `(i) ACCELERATION OF INCLUSION-
  • • • • `(I) IN GENERAL- The amount otherwise required to be included in gross income for any taxable year beginning in 2010 or the first taxable year in the 2-year period under subparagraph (A)(iii) shall be increased by the aggregate distributions from Roth IRAs for such taxable year which are allocable under paragraph (4) to the portion of such qualified rollover contribution required to be included in gross income under subparagraph (A)(i).
  • • • • `(II) LIMITATION ON AGGREGATE AMOUNT INCLUDED- The amount required to be included in gross income for any taxable year under subparagraph (A)(iii) shall not exceed the aggregate amount required to be included in gross income under subparagraph (A)(iii) for all taxable years in the 2-year period (without regard to subclause (I)) reduced by amounts included for all preceding taxable years.'.
  • • (B) The heading for section 408A(d)(3)(E) is amended by striking `4-YEAR' and inserting `2-YEAR'.
  (c) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2009.
  

LOL. Sorry, just because some agents aren't aware of how to ladder annuities doesn't make your solution 'unique.'

BTW - the strategy I referred to eariler was not laddering annuities so contrary to your opinion, it is unique.

Lastly Rick - thanks for the note. However, the info was not copied from another site. It was copied from my word document so not sure why all the code showed up.

 

[padthaiforlunch]

Well, feed me crow on that. Guess the question is whether the client want to wait for the 2011 and 2012 tax years to pay those taxes.

Curious how about this:

using "safe money strategies" to position the ROTH so that within 5 years, the ROTH has experienced enough growth to pay the tax due from the conversion. Net result is you could show your client how to go from a $1M Fully Taxable IRA to a $1M Fully Tax Free IRA in 5 years or less without having to necessarily pay for the tax due from conversion from "Hip National Bank."

$1M to $1M fully tax free. Using 2009 tax rates and splitting it over two years, the effective tax rates for marrieds is 29%.

To come up with $290,000 over 5 years, you will need to earn 5.22% each year. Not sure who is offering a MYGA paying that high right now.

Even if you make the assumption that taxes won't increase for tax years 2011 and 2012, the client still needs to come up with $145,000 in 2012 and 2013 to pay the tax bill.

How do you propose the client doesn't have to pay from hip pocket bank? While the process makes the client whole they still have to pay the tax, and the money will be tied up. Unless you have non-qual to pay the tax bill, or you don't convert all the qual money.

You could use a bonus product with a lifetime income rider to accelerate the account value. Hell, with the forethought 125 the client's income account value is $1,312,500 at the end of year one and they have a lifetime tax-free income stream.

Even if you just put the $1M into an FIA with a 10% bonus and a 3.23% fixed account, the contract value will be $1,290,000 at the end of five years. Of course the client will probably be in a 10 year product.

But since you are talking about the Roth growing enough to pay the taxes within five years, it seems you're not placing the money in the fixed account.

While the Roth will have grown enough in five years to pay the taxes, the taxes will have already been paid.

BTW: I like your website, but you don't mention how much money you want to learn your "program."

 

[mmov1997]

Padthaiforlunch,

Thanks for the complement on the site. I'll need to talk to my webmaster about why the price isn't showing up. It used to be on the order tab. Payments are accepted via paypal so when you click the order tab and and enter your email address it takes you to the paypal payment site. It's $250 for downloadable version or $300 shipped.

Once you've orderd and had a chance to review the material, I'll gladly schedule a convenient time to walk you through the "moviing pieces" of the strategy so you're comfortable on how to implement it.