Roth Conversions

Next year there will be a once in a lifetime opportunity (at least thus far) to convert your traditional IRA into a Roth IRA with the ability to spread the taxes out over two years. Also, starting in 2010 there will be no limit on who can convert their IRA into a Roth. In the past if your household income was over $100,000 you were not allowed to convert.

If you're unfamiliar with the difference between IRAs and Roth IRAs here is as simple a definition that I can give: For a traditional IRA you contribute pre-tax dollars which brings your taxable income down now, but when you take it out during retirement it is taxed at ordinary income tax rate (you don't know what that will be by time you get there). In a Roth IRA you contribute after tax dollars, but your account grows tax free. When you take it out you don't pay any taxes on it. Also, with an IRA you are required to start taking distributions at age 70 1/2 based on life expectancy, whereas in a Roth there are no required minimum distributions.

So you see the benefit of being able to convert your IRA to a Roth: your money can grow tax free from now until you retire or need the money. This conversion may not be right for everyone. One major reason that may keep it from being beneficial is if you don't have the capital to pay the taxes. More than likely you wouldn't want to pull money out of your IRA to pay taxes because there are penalties when pulling money out of your IRA before 59 1/2.

There are many other issues to consider when deciding whether or not to convert. Read more about the conversion in the articles below. If you want to talk more about it we'd love to hear from you.

Yahoo Finance- Converting an IRA into a Roth?

Money-Zine.com 2010 Roth IRA Conversions

Is the economy really on the road to recovery?

Warren Buffet in the article that is linked below, says that inflation is on the way and he said that he would rather have more stocks at a DOW at 9000 than long on bonds. That doesn't mean that Buffet is for buying more stocks but likes them better than owning bonds with looming inflation.

We have been talking for some time that inflation has to happen with the amount of money that the Fed is printing. Every program that the current administration has gotten passed costs money and money that our country does not have. When a person lives beyond his or her means, it catches up to the person and their credit is cut off. Our country has far out spent its ability to repay and some of our creditors are beginning to say NO to buying more of our debt. The dollar has to fall in value. Stocks on the other hand, are going up in value based on earning reports being better than expected. However, these earnings are improved on a net basis mostly due to cost cutting not improved sales!

We also have a country that is very good at saving into 401(k)s. Most people who are investing in a 401(k) have not changed their investment allocation since they enrolled. So, as money from monthly savings pours into these stock mutual funds, the manager has to buy stocks! This in itself causes markets to move up. More dollars chasing a stock that has not moved due to additional profits will however increase in price because more firms are buying it.

Our stance remains the same. Lets stay well diversified in a assets that will perform well in a poor or stagnate economy and stay out of the US stock market on a long only basis. I am very excited that our hedge fund long short managers have done well in this short rise in the market but mark my words....there is going to be profit taking a ride back down.


http://finance.yahoo.com/news/Buffett-to-CNBC-Invest-in-cnbc-2854963522.html?x=0&sec=topStories&pos=1&asset=&ccode=