TRADITIONAL IRA VS. ROTH TRADITIONAL IRA VS. ROTH IRA IRA Traditional IRA (est. 1974) Pretax contributions grow tax-free Required minimum distributions (RMDs) required beginning at age 70½ Distributions are taxed (treated as ordinary income) No adjusted gross income (AGI) limit (AGI may impact deductibility of contributions) $5,000 contribution limit (under age 50); $6,000 (above 50) Roth IRA (est. 1997) Taxed contributions grow tax-free No RMDs for the original owner Qualified distributions taken at least five years after creation of the account can also be withdrawn tax-free AGI limit of $100,000 for conversions in 2009 and prior
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TRADITIONAL IRA VS. ROTH IRATRADITIONAL IRA VS. ROTH IRATraditional IRA (est. 1974)
Pretax contributions grow tax-freeRequired minimum distributions (RMDs) required beginning at age 70½ Distributions are taxed (treated as ordinary income)No adjusted gross income (AGI) limit (AGI may impact deductibility of contributions)$5,000 contribution limit (under age 50); $6,000 (above 50)
Roth IRA (est. 1997)Taxed contributions grow tax-freeNo RMDs for the original ownerQualified distributions taken at least five years after creation of the account can also be withdrawn tax-freeAGI limit of $100,000 for conversions in 2009 and prior$5,000 contribution limit (under age 50); $6,000 (above 50)
Made possible by the Tax Increase Prevention and Reconciliation Act, passed in 2006
Effective January 1, 2010, all taxpayers including those with an adjusted gross income (AGI) > $100,000 are eligible to convert traditional IRAs and qualified plan assets to a Roth IRA
No restrictions against married filing separately
Tax liability resulting from a conversion in 2010 may be spread equally over 2011 and 2012 tax years
THE ROTH IRA OPPORTUNITY
Changes to a Roth IRA
Now is the time to take advantage of this opportunity
TAXES OVER TIMETAXES OVER TIMEGross Public Debt: Total % GDP & Highest Tax Rate
0
20
40
60
80
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120
140
1940 1947 1960 1970 1980 1990 2000 2010
National Debt as a% of GrossDomestic Product
Highest FederalTax Rate
Source: zfacts.com TaxFoundatoin.org
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20
40
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2008 2050 2082
Lowest Tax Rate Middle Tax Rate
Highest Tax Rate
Retirement Legacy
The Future of Taxes?Congressional Budget Office Estimates
Now is the time for tax diversificationSource: The Heritage Foundation, “2009 Federal Revenue and Book of Charts”, Graph 37 (Data derived from Congressional Budget Office)
10%
25%35%
19%
47%
66%
25%
63%
88%
CONVERTING TO A ROTH IRA LEAVING A LEGACY
Assumptions
70 years old
30% tax bracket
$100,000 in a traditional IRA
Don’t need the IRA for income; you want to leave it to your beneficiaries
$0
$100,000
$200,000
$300,000
$400,000
70 91
Roth IRA - Net tax, No RMDs Traditional IRA - RMDs
CONVERTING TO A ROTH IRA: LEAVING A LEGACYOptions:Keep traditional IRA and do nothingConvert to a Roth IRA; taxes paid with funds inside account -$30,000 tax liability taken from initial contribution
The assumptions in this illustration are purely hypothetical and are not in any way guaranteed or intended to represent past or future performance of any product.
