New tax law that makes it easier to gain access to Roth IRAs

As seen on Yahoo finance and Forbes:

Investors and financial advisers are preparing to take advantage of a new tax law that makes it easier to gain access to Roth IRAs—even if it means breaking a sacrosanct rule about Roth conversions.

Starting, Jan. 1, the $100,000 income limit disappears for converting traditional individual retirement accounts and employer-sponsored retirement plans to Roth IRAs, one of the biggest changes on the IRA landscape in years. Roths, of course, have long been viewed as one of the best deals in retirement planning; after investors meet holding requirements, virtually all withdrawals are tax-free.

Just how many investors will make the leap is unclear. Converting to a Roth can be expensive; it requires paying income tax on all pretax contributions and earnings included in the amount converted. What's more, financial advisers have long argued that converting makes sense only if an investor can pay the tax from funds outside the IRA itself - an admonition that seemingly limits the strategy to the very wealthy.

That said, some financial advisers say growing numbers of their clients are leaning toward a Roth conversion, even if they have to tap their traditional IRAs to pay the taxes. The primary reasons: new, contrarian analyses of taxes and conversions—and a desire to gain more control over nest eggs in the years ahead. With a traditional IRA, investors must begin tapping their accounts after reaching age 701/2, which increases taxable income. With a Roth, there are no required distributions, giving retirees more flexibility in managing their investments and cash flow.

For many investors, "the required minimum distribution makes them sick," says John Neyland, president of JCN Financial Group in Baton Rouge, La. "They don't want the government to tell them when to take the money out."

Although only 5% of the country's $3.7 trillion IRA assets currently are held in Roths, about 13 million households holding more than $1.4 trillion in retirement assets will become newly eligible next month for conversions, says Ben Norquist, president of Convergent Retirement Plan Solutions LLC, a Brainerd, Minn., consulting firm. Vanguard Group predicts that 5% of its customers will do Roth conversions in 2010, up from a typical 1.5% rate. Charles Schwab & Co. found that 13% of 400 households with adjusted $100,000-plus incomes are considering converting at least part of their IRAs.

The income tax due on assets being moved to a Roth from a traditional IRA is a non-starter for many people, because few—including those with incomes of $100,000 or more—have the assets outside their tax-deferred accounts to pay the Internal Revenue Service. Others, who do have the money, are reluctant to part with it; such funds, often, are set aside for emergencies.

But some financial planners, after running projections involving retirement savings, withdrawals and taxes in coming decades, have concluded that it's worthwhile for many in this group to convert at least some of their IRA assets to a Roth—and pay the tax with funds inside the IRA.

"I have a case where my client is 60, and I was surprised to find that she comes out ahead whether she pays the tax with cash \[outside the IRA\] or the assets inside the IRA," says Deborah Linscott, a financial adviser in Dublin, Ohio.

Here's why: Even though individuals who convert and who decide to pay the tax bill with funds inside their IRA are lowering their overall IRA balance, their new Roth account eliminates the requirement to make taxable withdrawals after age 701/2. For some people, that means they can stay below the threshold at which much of their Social Security checks would be taxed. Others can avoid higher Medicare premiums (which are tied to income levels). And a few could wind up leaving larger legacies down the road, since inherited Roth IRAs aren't subject to income tax, either.

Bob Phillips, a 64-year-old retired engineer in suburban Cleveland, plans to covert his traditional IRA valued at $552,000 to a Roth. He has only about $8,000 in cash, so he plans to pay the tax from his IRA assets, which will reduce his retirement savings. But when Mr. Phillips turns 701/2, he won't have to make any taxable withdrawals, meaning the $35,000 in Social Security benefits that he and his wife receive annually shouldn't become taxable.

If the Phillipses can avoid losing about 20% of their Social Security to taxes, their Roth withdrawals—should they need them—will be smaller, as well. That, in turn, gives the Roth a better chance to grow with time, says Mark Tepper, the couple's investment adviser.

Mr. Tepper used 10,000 "Monte Carlo" simulations (designed to estimate the odds of reaching financial goals) and found that, without doing a Roth conversion, they have only a 50-50 chance of making their funds last across their life expectancies. With a Roth conversion, even using assets from the account itself to pay the tax, they have an 88% chance of not outliving their savings.

Some additional points to consider:

— Investors weighing Roth conversions may want to run their plans by a local accountant: At least one state, Wisconsin, didn't drop the $100,000 income limit, meaning unwitting residents over that limit face a penalty for Roth conversions.

— IRA owners with Medicare Part B who convert to a Roth may subject themselves for a year or two to higher premiums (which, again, are tied to income).

— Investors under age 59 1/2 who convert to a Roth would pay an early-withdrawal penalty on IRA assets used to pay tax.

— Using IRA assets to pay the tax man reduces the amount you could later "recharacterize": If the converted Roth assets fall in value, you are allowed to recharacterize the account as a traditional IRA and no longer owe the tax. "But if you take $100,000 out of your IRA and you only roll $80,000 into a Roth, you only have $80,000 to recharacterize, not the whole thing," says Ed Slott, an IRA consultant in Rockville Centre, N.Y.

—Anne Tergesen contributed to this article.

Write to Kelly Greene at kelly.greene@wsj.com


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Five Energy Zapping Foods

1.) Lattes and cappuccinos

Postworkout caffeine may be energizing at first, but it won't last all day. Plus, your favorite sweetened mocha adds unnecessary fat and sugar. Instead, opt for green tea sweetened with just a touch of honey.

2.) Muffins and other pastries

People often think fruit-filled muffins are a much healthier choice than donuts or danishes. But all of those foods contain too many calories, not enough protein, and are often loaded with sugar.

3.) Candy bars, granola bars, and protein bars

Sure, you'll find some protein in these bars, but you'll also find lots of calories. These are never a good choice if sugar or corn syrup is among the top five ingredients.

4.) Pretzels

It's no wonder most people make pretzels their number one choice when it comes to the office vending machine. It's easy to be pulled in by the low-fat labeling of these tasty snacks. The down side? They lack adequate protein and contain enough processed white flour to send blood sugar skyrocketing.

5.) Ice cream, hamburgers, etc.

How often have you justified eating junk food after lifting weights or completing a grueling run? "Rewarding" yourself with one of these high-fat convenience foods after a workout cancels out all the hard work you just completed.

12/12 affirmation

Every aspect of my life is complete. My body is sunken into a pool of love. My soul is surrounded with calmness. My energy is balanced and gently flowing.

Sent from my iPhone

Voids

Every empty space shall be filled with something. Although thoughts and things come to you, which are you allowing to stay?

Be careful of the thoughts, habits, people, and things that you allow to fill your voids.

Sent from my iPhone

Vitamin D and Winter Immune Health

I know I normally post inspirational quotes and scriptures; however, today I'm going to share my other passion....Health!

Have you ever wondered why Cold and Flu viruses rise during the winter months? Or why people experience higher rates of depression during the autumn/winter? The link to both of these issues as well as other commonly experienced problems is a Vitamin D Deficiency.

During the Winter months we often experience shorter days and reduced sunlight. One natural source of vitamin D is indeed 'Sunlight'. Before delving into deeper research a correlation is already noticed.

What is Vitamin D?:
Vitamin D is a fat soluble vitamin mainly found in two forms, vitamin D2 or ergocalciferol and vitamin D3 or cholecalciferol. It is primarily responsible for maintaining the level of calcium and potassium in the body by facilitating their absorption. Therefore, vitamin D is crucial for bone growth and repair. It also strengthens the immune system and inhibits the secretion of parathyroid hormone. It is mainly produced in the skin with the help of ultraviolet radiation of sunlight. So the synthesis of vitamin D in the skin is determined by a number of factors including season, geography, smog, cloud cover and the time of the day, all of which can affect the exposure to sunlight. Liver is the main storage organ for vitamin D.

Common causes of Vitamin D Deficiency are:
Poor nutritional intake (malnutrition); inadequate intake of fruits and vegetables, excessive drinking and smoking, overuse of medications, and prolonged oxidative stress.


Symptoms of Vitamin D Deficiency:
Deficiency of vitamin D in children can cause rickets, which is characterized by retarded growth and deformation of the skull, while in adults it causes osteomalacia. Osteomalacia is characterized by weak bones, bone pain, bone softening and muscle pain. Vitamin D deficiency can also cause periodontal diseases, chronic fatigue, irritability, headache, migraine, brittle nails and dizziness. In addition to these, it is associated with high blood pressure, tuberculosis and depression.

Food Sources of Vitamin D:
Milk and dairy products, egg yolk, salmon, mackerel, tuna, sardines, fish liver oil (Omega's), soy, Chinese cabbage, seaweed, broccoli, mustard, molasses, cane sugar, legumes, beans, almonds, oranges, and supplements (for those on the go).

Environmental Sources of Vitamin D:
Sunlight!!!!

Disclaimer: I am not a Doctor; however, I took some time to research this topic and truly hope that the above information can educate us all during the winter months.

-Biron