Unforeseen Consequences of the Roth IRA Conversion

This is another guest post from JoeTaxpayer.  On my blog, I’ve shared several articles that discussed the Roth IRA conversion event of 2010 in great length and detail.  While this is can be a great opportunity for many, there are several instances that a conversion does not.  I looked to JoeTaxpayer to share some pros and cons of the Roth IRA conversion and for unforeseen consequences that could result.

Unforeseen Consequences of the Roth IRA Conversion
Creative Commons License photo credit: KayVee.INC

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What is the Purpose of a Trust?

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Creative Commons LicenseUsing a Trust for Estate Planning

This is the second part of a two part series on estate planning by JoeTaxpayer.   Be sure to check out the first post What is Estate Planning.

Earlier, we talked about designated beneficiaries. It’s important to note that the accounts which use designated beneficiaries avoid probate and are not subject to public disclosure. This leads us to the next topic, trusts. Trusts also are not part of the probate process, but there are different types of trusts each with their own additional benefits.
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What is Estate Planning?

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Estate Planning for the Inevitable

This is another guest post from JoeTaxpayer.   This is a two part series discussing estate planning.

I am going to die. No, I don’t have a terminal disease, I am going to die because I am human, and dying is part of living. I won’t die any sooner for the fact that I have a will, in fact, with a will I sleep better at night knowing my affairs are in order.
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Using a Roth IRA to Maximize Your Wealth

You must have earned income (compensation) in order to contribute to a Roth IRA. The annual amount you can contribute to a Roth IRA is solely dependent on your adjusted gross income as determined on your federal income tax return.

Jeff has referred to the Roth IRA as “the greatest thing since sliced bread” and I have to say, I agree wholeheartedly. Today I’d like to discuss how you can use a Roth IRA  to maximize the amount of wealth you can generate. Read that last sentence as “minimize your taxes over time.” Who doesn’t want to minimize the amount of taxes you pay over time?  Am I trying to tell you that depositing all your retirement savings into a Roth IRA, or converting as soon as you are permitted is not the best route for everyone? Exactly.

Let’s start with a quick explanation of Roth IRA vs traditional retirement accounts (this can be either an IRA or 401(k) as each offer the Roth variant). A traditional account permits you to take a tax deduction for deposits going into the account, in which the money would grow, tax-deferred, and taxed upon withdrawal at your prevailing marginal rate. The Roth account is a bit of a mirror image of this, the deposits are made with post-tax money, but both the growth and subsequent withdrawals are made tax free. In a sense, the decision comes down to one question – will you be in a higher tax rate at withdrawal time?

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