Do You Have an IRA in Your Investment Portfolio? Hillsborough CA

If you’re like us, as we approach the end of 2009, we are beginning to do some  financial planning for the new year and to try and rebuilt that nest egg that most of us lost.  I’d like to introduce Rich Umanzio, my personal financial planner, who has an interesting idea to help us recapture some of the losses we all had from the stock market’s fall of last year.  If your retirement investments includes an IRA, please read about his idea and see what you think.

Here is a financial planning idea for you to consider in 2010.  It is an outstanding way to make lemonade out of lemons that exist in virtually all IRA portfolios due to the decline witnessed in 2008. It could potentially make you a considerable amount of tax free money in 5 years.

Here is a summary of what I propose so that you can take my idea to your CPA  or if you prefer, I can call him/her on your behalf:

The new tax law allows virtually everybody who has an IRA to convert some or all of it to a ROTH, known as a Roth Conversion beginning in 2010. Before the change, most high income taxpayers were ineligible. That has changed. When you move investments within the IRA to the Roth, you will pay the tax on the conversion amount immediately upon the conversion.  Except in 2010.  The government is allowing you to pay only 1/2 in 2010 and the other 1/2 is not due until 2011.

Why don’t you do a partial Roth conversion and only move those assets that have significantly declined in value, and pay therefore less in taxes over the 2 year time-frame?   This way you truly can make lemonade out of the lemons. For example, if you take 250 shares of Citibank trading today for $4.29 down 89% from a year ago and move it to the Roth you would pay 1/2 of taxes at your income tax bracket in 2010 on $1,072.50 (250 x $4.29). Move it to the Roth next year, pay 1/2 of the tax..  Any investment in the Roth would have to remain for a minimum of 5 years, afterwards it totally income tax free.  In 5 years we could reasonably expect that the bank will be worth considerably more than it is today.  Another example is General Electric trading at a fraction of its previous value before the crash. Consider any asset that you expect to grow back significantly as the ones to convert to the Roth. Citibank and General Electric are not the only examples of stocks that potentially could make you a lot of tax free growth.

You will pay less in taxes, have 2 years to pay it, move assets that could double, triple, or more into the Roth, and in 5 years have significantly more available to you and without any taxes to pay on the growth.

Let me know if you want me to talk with your CPA (supply the name and phone number). If you have questions, obviously give me a call.  I see this as a gift that no one ought to pass up.  You can reach me at (925) 472-5201 or <rich dot umanzio at wellsfargoadvisors dot com>