Nov. 2, 2009
“Getting Roth Right”
If you read the “About First Command” page on our website, you'll learn that we “...develop and deliver comprehensive financial plans to assist American families in their efforts to reduce debt, build wealth and pursue their financial goals and dreams.” And I believe that's a pretty accurate high-level summary of our mission.
But if you ask one of our Financial Advisors what they do, you're just as likely to hear that they “help people make smart decisions with their money” — which, frankly, provides even greater insight into the day-to-day value we seek to deliver. Because it's only by making smart, well-informed decisions on a monthly, weekly, or even daily basis that we can hope to stay on track for our long-term goals and dreams.
That leads me to the central point of this communication. You may have the opportunity to make a decision today that can significantly affect your tax liability and income in retirement. Effective Jan. 1, 2010, the IRS eliminated the maximum income limit of $100,000 for a Roth IRA conversion - and allows anyone who converts eligible dollars in a traditional IRA, 401(k), 403(b), Thrift Savings Plan, SEP IRA or Simple IRA to a Roth IRA in 2010 to pay any resulting income taxes over a two-year period in 2011 and 2012.
Why consider converting your assets to a Roth IRA? Unlike the traditional IRA or other tax-advantaged retirement plans, in which investors can reduce their tax liability through before-tax contributions, Roth IRAs require after-tax contributions in exchange for tax-free withdrawals in retirement. So if you anticipate that your tax rate will be higher in retirement, or if you just prefer to pay taxes during your working years so that you can enjoy tax-free income in retirement, you should give strong consideration to a Roth conversion.
A Roth conversion is not the right move for everybody. For those who do not have dollars available outside of their IRA accounts to pay the taxes, for example, a conversion probably doesn't make sense. But for young investors who have a chance to pay a relatively small tax bill now in exchange for years of future tax-free growth, this may be a terrific opportunity. And for those focused on efficiently transferring an estate to children or grandchildren, a Roth conversion almost certainly needs to be considered.
Making the right decision about whether or not to convert eligible tax-qualified assets to a Roth IRA, in other words, requires a careful examination not only of your current financial circumstances, but of your long-term financial objectives. And First Command is prepared to help. We've created new web pages and a fact sheet about the Roth IRA conversion that you can read and print here. And we've supplemented your Financial Advisor's knowledge and expertise with the financial planning technology — including a sophisticated IRA Conversion Calculator — to ensure that you make an informed decision that is consistent with your long-term financial plan.
So if you're interested in determining whether a Roth conversion is the best solution for you, I encourage you to pick up the phone and give your First Command Financial Advisor a call. This is your next opportunity to make a smart decision with your money.
J. Scott Spiker
Chief Executive Officer
First Command Financial Services, Inc.
