Always wanted a Roth IRA, but your income exceeds the limits? New way available soon. Income limits for converting IRAs to Roth IRAs are being removed in 2010. You have to pay the taxes now, but then it grows tax free. Why convert  in 2010?

  • Portfolio is down, means taxes you owe will be down when the rules are lifted Jan. 1.
  • Those that convert in the first year can spread the taxes out over two years. This is a one-time only offer for the first year of this rule change.
  • If you believe taxes will go up, this is how you hedge your nest egg. Growth and withdrawals are tax-free in Roth IRAs (for both you and your heirs).
  • No Required Minimum Distribution (RMD) once you hit 70 1/2, makes this an excellent weatlh transfer tool.

I look at this as a rare gift from the government. You have to pay the taxes now, but you would pay taxes upon withdrawal. This provides you with more tax strategy options in retirement.

Great article in Wall Street Journal’s weekend edition about these changes. Will definitely be topic of future posts as we approach 2010. Start talking to your accountant now!


Last night at an event I was asked my opinion on the whether individuals should enter retirement with no mortgage.

I am in the camp that successful retirement plans have no mortgage. It is a function of cash flow. If you have no mortgage then you do not need to have your portfolio producing that extra income. Having no mortgage in retirement has a substantial impact on managing your monthly living expenses and projecting what you will need in nest egg.

A widely used reason to keep a mortgage is to keep the interest deduction. While I believe paying taxes is not our patriotic duty and like to minimize taxes, it has to be based on financially sound calculations. Keeping a mortgage to have a deduction just doesn’t work. If you keep a mortgage for a deduction you are going to keep paying thousands of dollars in interest to pay fewer taxes. I challenge you to execute the math.  

 Here is an example with some round numbers. You pay $10,000 in mortgage interest and you are in the 25% tax bracket, which gives you a tax savings of $2,500.

 The end result is you pay $10,000 in interest to have $2,500 refund. It is trading $1 for $0.25. The only one happy about this equation is the bank!

I want to stress that paying off a mortgage is only one part of a sound financial game plan for retirement. While I like no mortgage in a retirement plan, I also do not encourage you to put all your extra income into paying off your mortgage instead of investing. Each financial plan is specific to your goals, timeframe until retirement and investment tolerance. Don’t make this decision without looking at the entire picture and developing your game plan.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

Check your withholding on your paycheck. On April 1 President Obama’s “Making Work Pay” tax credit went into effect with the goal of providing $400 tax cut to individuals and $800 to married couples. It was widely touted by the Obama Administration that the average American family will start taking home $65 more per month.

One little catch. This tax cut was delivered immediately by the IRS issuing new tax withholding tables reducing the amount of withholding from paychecks. The glitch is individuals making more $95,000 and couples making more than $190,000 are ineligible for the tax credit, but are still having their withholding reduced.

Also millions of Americans will have more withheld than they are entitled to under the credit, because the withholding tables do not take into account if you work more than one job or are a married couple where both spouses work. This extra tax credit will need to be repaid next year come tax time. So without making the choice you could be withholding less throughout the year and owe more come April 15, 2010. Surprise!

If you have nothing else to do and spend time on the IRS website like me you would find the IRS encourages using the new withholding calculator for those potentially caught in the glitch. The IRS even clearly defines who is at risk.

The following is from  – You should use this calculator to ensure that the reduced withholding will not result in having too little income tax withheld (possibly causing you to owe taxes next year) if:

  • You are an employee with two concurrent jobs,
  • You and your spouse both work, or
  • You can be claimed as a dependent on someone else’s tax return (since you are not eligible for this credit).

The other big impact group is those with non-government pension income, as your withholding was adjusted as well, but you are not eligible. This means you could owe more come April 15, 2010.

Here is the IRS statement for this group. From  – Pension income: Non-government pension income is not eligible for the Making Work Pay Credit, so we are in the process of updating the calculator to account for this. The update should be operational by late May. If you expect to receive a significant amount of pension income in 2009, you should use this calculator by early June so that you can adjust your withholding appropriately for the second half of the year.

One way to prevent this situation is to use the new IRS withholding calculator and adjust your withholding accordingly. Or call your accountant to see if you should add more withholding due to your tax bracket, job status or combined spousal income.

I guess it’s that saying is true. There is no such thing as free lunch.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated.