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May 18, 2009


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This looks like a well meaning post, but it looks like there's a lot you have to do to make it work. I'm sure it's worth it, but it also looks like you have to do a lot ofthings right. I'm all about keeping my life simple, and if that means paying a little more in taxes so be it. Perhaps this would change if I could see some pictures and flow charts. I do better with pictures. This was well written, and the author is obviously smart, keep it coming.

Deciding which IRA account fits your specific situation and the amount you should contribute is not a straight forward thing. A direction that is almost 100% correct is to maximize your contribution to an employer sponsored plan (such as 401k, 403b).

The world of retirement accounts is a confusing tangle of IRS codes. The average family does not take full advantage of the tax laws. They can find financial tax planning equally bewildering.

A complex technique called "Roth segregation accounts" could earn your investments an extra 30% over the next two years, so you'll have to study this column carefully to understand how it works. But trust me. Learning about this strategy will be well worth the time.



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Good article...people need to realize what an opportunity the 2010 roth conversion is.

If I understood the strategy correctly:
- When you convert from Traditional to Roth, you have to pay taxes on the converted amount, UNLESS you recharacterize it back to a Traditional IRA before you file taxes.
- By filing for an extension, you don't have to file your taxes until October 15 of the following year.
- If you do a conversion on January 1, you have 1 3/4 years to decide whether to keep it or recharacterize.
- If it goes up, keep it in the Roth, because the earnings can be tax-free.
- If it goes down, recharacterize it, so you don't end up paying taxes on more money than you now have. (If you'd like, you could then reconvert the lower amount of money.)
- By breaking the conversion into separate accounts with separate asset classes, you can take advantage of volatility (standard deviation). Usually investors fight volatility by diversifying. In this case, you are diversified when all accounts are taken together, but each individual account is not; this allows you to treat positive returning accounts differently (keep them in Roth) than negatively returning accounts (recharacterize back to Traditional).

Obviously it's a complicated process, and I wouldn't go through this with a $10,000 account, but with a larger sum of money, this could be well worth the work.

I have a question for Marotta in case they check these comments. I plan to convert a portion of my traditional IRAs to Roth next year, and intended to pay the tax back over 2 years, as is mentioned in this article (50% in April 2011 and 50% in April 2012). Based on the comment in the article, it appears that the 50% that is paid in April 2012 is taxed at the 2011 rate - is this definitely true? I was under the impression that you are taxed at the 2010 rate, but the amount due is spread over 2 years. Can anyone provide clarification? Thanks.

CF --

I don't think they checks these. You'll have better luck going to their site and sending them the question.

My firm matches investors to financial advisors and we are seeing a lot of clients getting ready to do this Roth conversion in 2010. Plus, it's a good idea to have a portion of your money in every "tax bucket" available, since no one knows what tax rates will be when you want to take money out. With different options, you can choose the best one for you.

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