Roth IRA Conversions

Have you heard of a Roth Conversion? Well, it is the process by which a traditional (regular) IRA is exchanged to a Roth IRA regardless of income levels. So why would you do this? Basically, a regular IRA is an account designated for retirement that was typically funded with pre-tax (tax-deductible) contributions*…and distributions from the account are considered taxable income during retirement. A Roth IRA provides no tax-deduction for contributions, but under current law, you will NOT pay taxes on any distributions*.

Since 1998 regular IRA’s could be converted into Roth IRA’s…the IRA owner included all pre-tax contributions and earnings from the IRA on the tax return. So if the converted IRA was worth $20,000 and was comprised entirely of pre-tax contributions and earnings, the $20,000 would be included as income on the tax return. But subsequent gains on the new Roth account would not be taxable*….the goal is to pay tax on today’s dollars but avoid taxes on hopefully a much larger account later.

Roth conversions enable potentially huge tax benefits for your future…after you make the money back you lost to taxation. If I may offer my humble and longstanding opinions: Almost NEVER volunteer to pay taxes today for a promise of tomorrow and expect them to change the taxation of Roths down the road (as they did, for example, with Social Security).

*exceptions and other details apply; please refer to IRS rules and guidelines

Medicaid Rule Changes Seem Painful

The rules impacting nursing home confinements and asset protection guidelines continue to evolve. Though most of you have heard that the look-back period (the historic timeframe within which the system asks about asset transfers before Medicaid application) has been increased to five years, it is unfortunately only one of the changes.

Here are some other provisions:

* Asset transfers which occurred during the five years prior to Medicaid application will likely prevent you from receiving state assistance for many months. The number of months you would wait for state help (the so-called penalty period) will be based upon the value of the transfers made
* Those of you who own an annuity may regret it. For annuities to be most beneficial under the Medicaid microscope, very specific criteria must be observed. The state can actually take become your primary beneficiary if the rules are not followed. That is, it will stand to recover monies paid on your behalf directly from your annuities, presumably in lieu of your children.
* Those with home equity in excess of $828,000 may be denied benefits.

Other changes have also been enacted and of course, more details for the above are available. But suffice it to say that the changes have drastically altered planning strategies which means you should revisit this aspect of your financial plan. If you are exploring Medicaid Planning or currently own an annuity, I would strongly suggest that you give us a call.

Employers: Are You Managing the Company Pension ?

If you are the proprietor of your own business, you may have established a profit sharing or money purchase plan, or perhaps a hybrid plan. And for convenience and cost savings you may have elected to bear the difficult responsibility and risk of enlisting yourself as the investment manager.

Well, as time has gone on you may have realized that this task is another “job” and maybe you’ve become concerned that you just can’t spend the proper amount of time to provide the best possible results for yourself and your employees. Additionally, you are uncomfortable with accepting the risks associated with managing the assets. I have spoken with many employers who have expressed these concerns, and more.

You should be thrilled to know that the management platform we have operated for years is a superior alternative to managing the assets in your retirement plans. Our daily oversight platform is designed to provide diversification, control risk and costs. Typical investment commissions are a thing of the past in our portfolio models and all aspects of allocation and oversight become our responsibility. As well, since the plan is tax-qualified, the current plan assets can be converted to the model system without tax consequences.

Any employer who can identify with these concerns should take a look at our system. We’re absolutely confident you’ll share my enthusiasm. This platform is also available to IRA’s, old 401(k) plans, SIMPLE and SEP plans !!

I Am a Fiduciary

So I looked up the definition of “fiduciary” online. Even though the interpretations of a fiduciary can vary amongst different professional engagements, it is fair to state that a fiduciary must legally put your interests before their own. The “fiduciary standard” is extremely important in the world of financial and legal activities, not the least of which includes those with investment brokers, financial planners or similar titles.

You may be surprised to learn that your own financial representative MAY NOT BE a fiduciary….Not kidding!
So you may be working with a person or firm that has no legal requirement to put your needs and objectives first. Let’s compare that to a different relationship. What if you went to buy a new, big-screen television. And let’s say that one store only employed fiduciary salespeople who were legally required to provide disclosures and all the pro’s and con’s to help you make the best decisions. Contrarily, the other competing store didn’t require a fiduciary duty…which store are you going to? Now I understand that a financial relationship is not identical to buying a TV, but I do stress the expectation of absolute trust and objectivity one must have in financial engagements…that person who always acts as if they were doing things for themselves. And over the past decade or so, many industry lobbying firms have rigorously fought to prevent the imposition of a uniform fiduciary standard….I’ll let you ponder over that one.

So, maybe a good question to ask a current or potential financial adviser is “are YOU a fiduciary?”