Temecula Financial Advisor Reveals Roth Ira Strategy For High Income Earners

On May 17, 2006, the Tax Increase Prevention and Reconciliation Act (TIPRA) was passed into law by the President. One of the facets of this new law, which did not come into effect until January 1, 2010, made it viable for high income earners (those with a Modified Adjusted Goss Income over $100,000) to convert their traditional IRA's into Roth IRA's. The implication of this provision? It affords high income earners the benefit of the tax free interest of a Roth IRA. Although this sector of the population would be able to convert an existing retirement account to a Roth product, they are still not able to contribute to the Roth.

Until now…

One caveat of the conversion process provides a stipulation allowing high income earners over the age of fifty the chance to convert up to $6,000 annually from traditional to Roth IRA product ($5,000 per year for those below the age of 50). In other words, a yearly contribution can first be made to the traditional fund and then converted over to the Roth.

Why is this advantageous?

It is clear that not only our economy, but also government programs such as Social Security, Medicare, and Medicaid are in serious danger. Regardless of the political "spin" that is put on bailouts and relief efforts, most experts feel that the country is headed for tax increases rather than tax cuts. If you believe this to be true, the shrewd move is to find retirement and investment strategies that reduce your tax liabilities. A Roth IRA is one such tactic, providing tax-free growth and simplified savings. In your traditional IRA, you are not taxed on your investment (depending on your income) but then taxed on the earnings upon withdrawl. Conversely, initial Roth contributions are taxable as income, but earnings are built tax free. Assuming that we are headed towards a future of elevated taxation, eliminating liabilities on the back end (withdrawl) has the capability to save you thousands of dollars. Unfortunately, this choice was never before possible to those earning over $100,000. Currently, however, the window of opportunity is open for all to grab.

The key with this, or any financial planning strategy, is to work with a seasoned professional who is up to date on the ever changing rules of income taxes as they relate to retirement savings. Finding smart ways of helping you save and grow your money is the primary role of a financial planner and active portfolio management. Investigate your options, ask questions, and then move down that path which is best fit for you and your family.

By: John Dubots

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Learn more about active portfolio management and its benefits by contacting John Dubots, Temecula retirement advisor, with Dubots Capital Management. Dubots has over two decades in the industry and will provide a free consultation to answer all of your portfolio management questions.