Comments for Brian Preston's "Money Guy" Blog and Podcast

Comment on Selecting Tax Efficient Investments by Chris

Chris — Fri, 12 Mar 2010 04:23:01 +0000

Hey Brian,
I can understand your thinking with taxes, and we both probably think of it the same. However, I didn’t want you to neglect to mention payroll taxes and state taxes as these are usually regressive on lower income people. It is probably also important to mention that median wages in this country have not kept up with inflation for at least a decade. So poor are getting poorer and rich are getting richer, which at least rationalizes why poor would pay less now than before. However, I agree if we are going to get out of this deficit mess we are in, it will likely take a little extra in taxes from everyone, and the sooner we can curb spending the better.

Comment on Selecting Tax Efficient Investments by Gaylen Holt

Gaylen Holt — Thu, 11 Mar 2010 16:49:01 +0000

I agree that the tax situation is out of control. I do a few taxes as well to keep up, and I see the same situation that Brian was seeing. I think we are paying out too much to people who may or may not need it. I’m in the same boat. I had less cash witheld, made about the same income and I am getting back substantially more. I thnk that lot of crongress and the senate who have voted for these laws should be fired. There is a chance this November to make a change and wake up Washington.

Comment on Roth Conversion: In-Depth Analysis by Brian Preston

Brian Preston — Wed, 17 Feb 2010 16:10:34 +0000

Brian,

Yes, the Roth podcast can be downloaded to your iPod. If you go to iTunes, we are on the Featured Business Podcast page. You can also search by name, Brian Preston. If you choose to subscribe in iTunes (free), you can have every new show automatically downloaded as soon as we release it. I hope this helps!

Comment on Roth Conversion: In-Depth Analysis by Brian

Brian — Wed, 17 Feb 2010 00:32:45 +0000

Can this Roth podcast be downloaded to my ipod?

Comment on Understanding Unemployment by Art Fleming

Art Fleming — Mon, 15 Feb 2010 13:36:07 +0000

The bureau of labor statistics publishes the unemployment figures that Brian refers to. It actually shows that unemployment is rising if you look at the total figures, not the seasonally adjusted figures. Link at http://www.bls.gov/news.release/empsit.t15.htm.

Comment on Roth Conversion: In-Depth Analysis by David Raccah

David Raccah — Wed, 10 Feb 2010 15:50:04 +0000

Hey Brian – this is a HUGE win for the higher bracket folks, which in CA is like – everyone, as you cannot survive out here without two job families. Anyway, if it is true that the ROTH conversion limit is all but gone for now, why do they still have a cap on ROTH contributions, everyone is going to just put the money into a non-deductible IRA and OH -wait – convert it!

Use this year to manage the IRA(s) you have and move them back to the workforce and leave just the after tax IRA. Convert that this year and pay the tax for the next two years (for gains or such), and then going forward never pay for ANY further ROTH contributions (through a conversion). Paperwork yes, savaings HUGE!

THANKS!
David

Comment on Roth Conversion: In-Depth Analysis by Brian Preston

Brian Preston — Mon, 08 Feb 2010 18:24:05 +0000

David,

As it stands right now, the $100k income limit for doing a Roth Conversion is not coming back. However, I am hard-pressed to believe that it will stay this way indefinitely. The one-time opportunity associated with 2010 is the ability to spread the tax liability over two years.

Comment on Roth Conversion: In-Depth Analysis by David Raccah

David Raccah — Sun, 07 Feb 2010 04:07:59 +0000

Hey Brian,

I have one follow-up question. Is this Roth IRA conversion loophole, a onetime loosening of the rules for 2010? Or have the Roth IRA conversion minimums been removed for all years going forward?

Comment on Roth Conversion: In-Depth Analysis by Brian Preston

Brian Preston — Thu, 04 Feb 2010 19:17:25 +0000

John,

The AMT has not been much of an issue in our conversion calculations. AMT essentially makes you take your after-deduction income and add back certain deductions (taxes, misc. itemized, etc.). Then, once you get this new income number (the AMT taxable income), you have to multiply it by either a flat 26% or 28% depending on your level of income (essentially a flat tax). Realistically, the types of individuals whom we have seen the conversion make the most sense for are those who fall in the 15% – 25% brackets (not hit by AMT) or high earners that have passed the AMT threshold. While I’m sure there are individuals and situations where this problem could occur, I would image the other screens we suggested (outside funds to pay the additional taxes, high relative basis in total IRAs, ability to leave balance for at least 5 years, etc.) would help to avoid having to analyze the AMT implications. As for spreading the taxes, we recommend maxing out the 15% or 25% brackets in the current year. Without knowing for sure the future of tax rates (2011 and 2012), it is difficult to say definitively when will be the most advantageous time to pay the taxes. As we learn more, and Congress releases more information, it will be easier to make these decisions.

I hope this helps!

Comment on Roth Conversion: In-Depth Analysis by Brian Preston

Brian Preston — Thu, 04 Feb 2010 18:54:38 +0000

Robert,

Great question! One of the really great things about this Roth conversion is that you actually DON’T have to aggregate IRA balances between spouses. Each spouse must file their own IRS Form 8606 (unless the form changes in 2010). As I currently understand the conversion, in your example you would have $80k basis with total IRA balances of $680k. This means that about 88% of the amount you convert would be taxable. Your wife, however, would have total IRA balances of $20k with a $20k basis. Therefore, she would be able to convert all $20k without creating a taxable event.

Thanks for the question and I hope this clear things up!

Comment on Roth Conversion: In-Depth Analysis by John Dutemple

John Dutemple — Wed, 03 Feb 2010 20:32:39 +0000

Brian,

I thoroughly enjoyed listening to your Roth conversion podcast this morning and admire your willingness to take on such a complex decision as conversion and try to boil it down to finite scenarios. I’ve been wrestling with this for my clients.

I wonder if, in your analysis, you’ve had as much difficulty integrating the Alternative Minimum Tax as I have in developing guidelines. Putting aside the fact that it will require an act of congress (literally) to index the 2010 AMT exclusion to be in line with 2009, if I assume an indexed 2010 AMT, $3,000 real estate taxes (typical for my clients), and a 6% marginal Missouri income tax, I have eight marginal tax brackets for married filers in 2010 to compare to unknown, future rates!

Also, if I use the tax rates as they stand today (Bush tax cuts expiring in 2011 and tax rates going up a minimum of 3%), I have yet to see a client who is better off spreading the taxes over the (higher) 2011 & 2012 tax years if they expect a comparable income in those years. Has this been your experience? For those with large balances to convert, spreading the income over multiple years may push some of the dollars into a lower bracket, but as the $100,000 limit is not coming back, this can be achieved with partial conversions ‘filling up’ the client’s marginal tax bracket year after year.

Again, most of what I’ve seen & heard has been written by journalists rather than practitioners so it was great to hear your point of view. Keep up the good work. I look forward to every podcast.

Sincerely,

John Dutemple, CFA, FSA
President

Compton Advisors, LLC – Planning Futures, Managing Wealth

Comment on Roth Conversion: In-Depth Analysis by Robert Heng

Robert Heng — Wed, 03 Feb 2010 19:56:22 +0000

Brian, thank you for the great pod-cast and Roth conversion analysis. One thing that still confused me however (after listening and re-listening) is this. The IRA’s are separate to each spouse and presumably each spouse is the designated beneficiary of the other. When you look individually at each IRA under consideration for conversion, as I understand your analysis, you must then consider and thus combine the deferred holdings of the counter-party (spouse), assess the basis in the aggregate in order to determine the amount that will be attributable to tax – correct? So for example, if I had an $80K non-deductable IRA, and a $600K rollover SEP from a 403(b) and my spouse had a 403(b) (not a factor for consideration) and a $20K non-deductable IRA, we would have to consider my $680K combined with her $20K for a total of $ 700K to determine the potential taxable basis to convert only her $20K?

Thank you

Comment on Roth Conversion: In-Depth Analysis by Linda Albers

Linda Albers — Wed, 03 Feb 2010 18:24:15 +0000

Two things I’m not clear on are –
1) If the payment of taxes on a 2010 conversion are split between tax years 2010 and 2011, must the split be 50/50? and
2) will the payment made for 2011 be based on the tax rates in effect for 2011?

(I suspect the answers are “yes” and “yes.”)

Comment on Roth Conversion: In-Depth Analysis by pascale

pascale — Tue, 02 Feb 2010 01:14:42 +0000

Brian,

Enjoyed the show on Roth Conversions. I wanted to point out one area I think you neglected. I have a 401k which held after tax contributions. I checked with my company’s plan and they allowed me to separate the after tax contribution portions and convert to a Roth. I’m fortunate in that the pre-tax and after tax contributions were separate. Since, I hadn’t had any return on the after tax amt, I was able to convert $25k into a Roth at Vanguard tax free. So, now going forward – all growth will be tax free.

Anyway, great show. I really enjoy it.

Mike/Colorado

Comment on Roth Conversion: In-Depth Analysis by David Raccah

David Raccah — Mon, 01 Feb 2010 18:30:20 +0000

Hey Brian (and Bo),

LOVE this show. I had to do so much homework on my own, before the podcast, to figure out what you had in this compact and wonderful 55 minute podcast. Bravo on all the hard and clear work. Just a couple of comments.

1) I too have post-tax IRA(s) and thought I was home free! HA HA! We have a rollover IRA from my previous employer. So because I cannot cherry pick my IRA(s) to convert, I looked into the options at work, and guess what – they allow us to roll my existing (ROLLOVER IRA ONLY) IRA into our 401k at work! So once I do that I will be left with JUST my non-deductible IRA and now the cost of the conversion is way low. So please check with your employeer if that is an option!

2) To double check the calculation – check out this guys website, it is nice and clear, and gives great examples. http://www.goodfinancialcents.com/2010-traditional-ira-to-roth-ira-conversion-tax-rules/ and http://www.goodfinancialcents.com/2010-roth-ira-conversion-rules.