Category Archives: Investing and fiduciary requirements

Convert to a Roth IRA Before 2013 Tax Changes?

Carole C. Foos, CPA, and Jason Wainscott, JD
Published: Thursday, December 6th 2012
If you have considered converting a traditional IRA to Roth IRA, now may be the perfect time.

As you likely know by now, the Bush’s tax cuts are scheduled to expire at the end of 2012. Absent Congressional action, everyone will pay more taxes.

Additionally, President Obama’s Affordable Care Act (ACA) tax increases take effect
in 2013. This includes a 3.8% Medicare tax on the lesser of net
investment income (dividends, interest, rental income, capital gains,
passive income) or the excess of modified adjusted gross income (MAGI)
over $250,000 (married filing jointly) or $200,000 (single filers). The
ACA also includes a 0.9% increase in the employee’s portion of the
Hospital Insurance Tax on total wages in excess of the $250,000
threshold for married filers and $200,000 threshold for single filers.

If you are close to either threshold, or seeking a way to accelerate
taxable events into 2012 (while tax rates are lower), now may be the
time to convert your traditional IRA into a Roth.

What’s the difference?

In both a traditional IRA and a Roth IRA, your money grows tax free
while in the account. The main difference between the two is when you
must pay taxes on the money put into the account.

With a traditional IRA, you pay no taxes on the funds you put in.
Consequently, you are taxed when you withdraw money from the account.
With a Roth, you are taxed when you put money in, but there is no tax on
funds withdrawn from the account. Generally, Roth IRAs also offer a
little more flexibility if you need to take money out earlier than

Why now?

Generally, it is advantageous to defer tax liabilities for as long as
possible, but considering the possible increases slated for 2013 now may
be a good time to accelerate taxable events.

Taking a traditional IRA funded with pre-tax dollars and
converting into a Roth triggers a taxable event. If you wait and convert

in 2013, it will affect the determination of whether the Medicare tax
applies to the IRA owner’s investment income. The converted IRA amount
itself is not subject to the 3.8% tax as investment income. However, it
is included in compiling the taxpayer’s MAGI. Therefore, depending on
your circumstances, a Roth conversion in 2013 could increase the IRA
owner’s MAGI over the specified $200,000/$250,000 thresholds, resulting
in the application of the Medicare tax.

Converting now avoids this possibility. Further, assuming individual
income tax rates rise, completing a Roth conversion before year-end
could lock in lower tax rates on the converted amount, avoiding higher
income taxes in the future.

Wait and see?

With so much uncertainty surrounding impending year-end tax changes, it is tough to plan. Why not just take the wait and see approach? We believe it is generally better to take a proactive approach to tax planning. If things change, you can effectively undo the conversion.

You can convert a traditional IRA to a Roth with the understanding that
tax laws permit you to change your mind and retroactively reconvert the
Roth back to a traditional IRA at any time prior the deadline for filing
your income tax return (including extensions) for the year when
conversion took place. This enables you to take action now and revise
your plans later depending on what happens with the Bush tax cuts.

Advantages of a Roth IRA

The advantages and benefits of a Roth IRA over a traditional IRA may
vary depending on your specific circumstances, but generally Roth IRAs
offer the following:

• Distributions from a Roth are tax-free
provided the distribution occurs at least five years after you (or your
spouse) first fund the Roth and you reach the age of 59-and-a-half (or
become disabled or pass away); or distribution is for a qualified,
first-time, home purchase.

• Roth IRAs can also maximize tax-deferred growth by deferring required
minimum distributions (RMDs). Unlike traditional IRAs, Roths do not
have RMDs for the original owner or a spouse-beneficiary — so the Roth
IRA assets can grow, untouched and income-tax free, during your
lifetimes. Children or grandchildren who inherit Roths must take RMDs,
but they can extend the distributions over the course of their life
expectancies. This permits smaller distributions and greater assets to
compound within the Roth, income-tax free.

• A conversion to a Roth removes the double income and estate tax hit
on inherited IRAs. When the Roth passes to your designated heirs, an
estate tax applies. However, Roth beneficiaries take their withdrawals
income tax-free.

Cost benefit analysis

Obviously, any planning must be predicated upon your particular
situation. Typically, the biggest cost of an IRA conversion is the
acceleration of the taxable event, and the lost opportunity to earn
income on the amount of tax paid.

As discussed above, tax deferral is usually the best approach — but
given the current environment, accelerating recognition of income prior
to the scheduled rate increases may be more beneficial. Also, to
maximize the benefits derived from an IRA conversion, you should attempt
to pay the tax with funds outside of the account.

To determine if a Roth conversion is best for you, consider the typical
benefits against potential lost opportunity cost. Primary factors that
generally determine whether conversion is advisable include:

Time that you intend the converted funds to remain in the account

The longer you can leave funds in a Roth, the greater the advantage.
Conversion is less advantageous if you believe you will need the funds
during your lifetime.

Applicable tax rates to distributions made to you and/or your beneficiaries if the IRA remains a traditional IRA

If you anticipate lower tax rates in the future when you intend to
begin withdrawals, compared to the time of conversion — then the overall
benefit of conversion will be less.

Earnings rates generated by the account investments

Lower earnings rates make conversion less advantageous.

Use of funds for tax payments

If you will need to use account funds to pay the tax resulting from the
conversion, it will lessen the overall benefits of the conversion.

These are general considerations only. The only way to review the
potential advantages of a Roth conversion is to consult your advisor.
Reviewing your financial plan is the only way to see if a conversion
makes sense for you.

Other considerations

If you decide to go through with a Roth conversion, make certain you
factor the decision in with your current estate plans. Designating a
trust as the beneficiary of a Roth IRA can provide asset protection for
beneficiaries. Also, you will have to make certain all beneficiary
designation forms are completed accurately.

Whatever happens at the end of 2012, there will be a tax increase in
2013. If you own a traditional IRA and are close to the Medicare
thresholds, it may be advantageous to review whether a Roth conversion
is right for you, and whether effecting the conversion in 2012 could
increase the conversion benefits given the tax changes scheduled for

Carole C. Foos, CPA, is a tax consultant at the financial consulting firm OJM Group, where Jason Wainscott, JD, is the Compliance Office. They can be reached at 877-656-4362 or For
a free consultation to discuss your 2012 taxes and what you can do to
reduce them, call David B. Mandell, JD, MBA, at (877) 656-4362. You can
also call for a free (plus $10 S&H) copy of
For Doctors Only: A Guide to Working Less and Building More. If you would like a shorter free E-book download of our “highlights” version, you can download it here.


OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with
its principal place of business in the State of Ohio. OJM and its
representatives are in compliance with the current notice filing and
registration requirements imposed upon registered investment advisers by
those states in which OJM maintains clients. OJM may only transact
business in those states in which it is registered, or qualifies for an
exemption or exclusion from registration requirements. For information
pertaining to the registration status of OJM, please contact OJM or
refer to the Investment Adviser Public Disclosure web site (

For additional information about OJM, including fees and services,
send for our disclosure brochure as set forth on Form ADV using the
contact information herein. Please read the disclosure statement
carefully before you invest or send money.

This article contains general information that is not suitable for
everyone. The information contained herein should not be construed as
personalized legal or tax advice. There is no guarantee that the views
and opinions expressed in this article will be appropriate for your
particular circumstances. Tax law changes frequently, accordingly
information presented herein is subject to change without notice. You
should seek professional tax and legal advice before implementing any
strategy discussed herein.


Direct & indirect opportunities than don’t get enough ink.  – Reeve
Besides periodic IRA contributions and elective salary deferrals into 401(k) and 403(b) plans, there
are other ways to amass retirement savings, some of them often overlooked.
Put tax refunds & tax savings to work.
If you get a few hundred back from the IRS, that is not an insignificant sum.
You could save it or you could invest it with the potential to compound that
money. The same goes for the dollars you save as a result of tax credits or tax

Relocation. Ever thought about living where lifestyle costs are less? Moving to a cheaper part of the country might cost
you a few thousand dollars, but the long-run savings could end up dwarfing that
expense; you could free up thousands of dollars annually toward your retirement
savings effort.

As an example, Zillow’s Q3 2012 Home Value Index showed the median home value in
San Jose as $525,000 and the median home value at $356,100 in Boston. A San
Jose resident could move to Reno (Q3 median home value: $145,700) and a Boston
resident could move to Nashua (Q3 median home value: $186,300).1,2,3,4

You could also downsize as you relocate; moving into a smaller residence could free
up even more cash.
Rental income. While property management means occasional headaches even when a third party assumes
the duty, a steady stream of income from a rental home or condo may give you
another solid way to ramp up your savings efforts.
Redirecting some of your inheritance.
If you receive any kind of wealth, think about assigning part of it to your
retirement strategy. In fact, this is a good idea for any kind of sudden wealth
you come into, whether it comes from a relative, a settlement, a casino, or simply
your own talent and initiative.
Sell products or services, not simply your time.
Most people sell their time for money. One of the characteristics of the
wealthy is the entrepreneurial ability to sell products and services with a
value indirectly related or unrelated to a time investment. Consider what
products or services you could sell to make more money and build greater
retirement savings, with the possibility of positively altering the way you
work and live. The start-up costs of such a move may be less than you think.
Stay healthy. Hospitalization costs can be a
real setback for retirement savers. Good health (indirectly) pays off as we
age. Reasonable daily exercise and smart eating may help to reduce the risk of
major hospital, drug, and therapy expenses between now and retirement.

Halt or modify some recurring discretionary expenses.
Do you really need cable? Do you have to belong to the most opulent health club
in town? Must you have season tickets? Fewer such expenses today can translate
to additional money you can invest and save for your future.
Refrain from picking up your child’s college costs.
If you started a college savings account long ago, that’s a different story;
you have already dedicated money for this purpose. If you haven’t, remember
that no one offers “retirement loans” or “retirement financial aid”. Your son
or daughter may have a decade or longer to repay a college loan, and their
incomes may rise significantly during that time. If you elect to pay some of
their tuition or housing costs, you have comparatively fewer years to recover
from the impact of those expenses. Encouraging self-reliance can lead to you retaining
more of your savings for the third act of your life.
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily
represent the views of the presenting party, nor their affiliates. All
information is believed to be from reliable sources; however we make no
representation as to its completeness or accuracy. Please note – investing
involves risk, and past performance is no guarantee of future results. The
publisher is not engaged in rendering legal, accounting or other professional
services. If assistance is needed, the reader is advised to engage the services
of a competent professional. This information should not be construed as
investment, tax or legal advice and may not be relied on for the purpose of
avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.


1 –

2 –

3 –

4 –



20 days and counting- whats over the cliff for you?

Certainly, the most obvious change will be the reinstatement of full payroll taxes.  Your social security taxes from your paycheck will go from 4.2% back to their original 6.2%.

However, the single biggest contributor to the “cliff” is the expiration of the Bush Tax Cuts.  If the Bush tax cuts expire as scheduled, in January…

…Income taxes rise.  The Lowest bracket goes from 10% to 15%, and the highest bracket goes from 35% to 39.6%

…Capital Gains taxe rates rise from 15% to 20%

…Dividend rates rise from 15% to whatever your new, higher, tax rate will be

…The child tax credit reduces from $1000 to $500

…College tuition credits will reduce, with the expiration of the American Opportunity Tax Credit

…The Marriage Penalty returns, and married couples will owe more than if they were single.

…Estate Taxes return with a vengenace, with the exemption level falling from $5 million to $1 million, and top rates going up 20% to 55%.

As if that isn’t enough, there’s more!  The Alternate Minimum Tax (AMT) patch expires, subjecting another 26 million middle class earners to the tax.  A 3.8% surtax on investment Income is guaranteed, affecting mostly high-net-worth individuals.

So, its going to affect everyone you know – keep an eye on this.




If the fiscal cliff is averted, stocks may have all kinds of reasons to rise.

Presented by Reeve Conover

What if the future is more bullish than the bears assume? With 2013 approaching, stock market volatility seems
to have increased. Equities rise on optimistic remarks about a fiscal cliff
solution, then fall when another voice expresses pessimism, and vice versa.

In addition to this constant seesawing, the market
is contending with anxieties about Europe, with the eurozone now officially in
another recession, and the strong possibility of higher taxes on capital gains
and dividends in 2013 plus surtaxes on varieties of net investment income.1

Even so, 2013 may turn out to be a good year for stocks.
Our economy looks to be healing, and that may give investors around the world more

A housing comeback appears evident.
Our economy won’t fully recover from the downturn until the housing market does.
We have strong indications that this is happening. The October report on
existing home sales from the National Association of Realtors showed a 10.9%
annual improvement in the sales pace, with the median sale price rising 11.1%
in a year to $178,600. (The median sale price increased in October for an
eighth straight month.) The Census Bureau noted a 17.2% annual rise in new home
sales in October. Lastly, the Conference Board’s November consumer confidence
poll found that 6.9% of respondents planned to buy a home in the next six months.
In November 2010, less than 4% did.2,3,4

QE3 is open-ended. The Federal Reserve will keep
buying mortgage-linked securities for as long as it sees fit, and the Wall Street Journal has reported that
the Fed will likely broaden the effort to include the purchase of Treasuries in
2013 (compensating for the absence of Operation Twist next year). So cheap
money should be around in 2013 and beyond thanks to the Fed’s bond-buying
efforts and its dedication to maintaining historically low interest rates.5

Earnings couldimprove. This
last earnings season was as disappointing as analysts believed it would be, but
we could see gradual improvement across upcoming quarters, assuming Congress
does something significant about the fiscal cliff. Citigroup sees earnings
growth of 5% next year even with minor fiscal tightening.6

Durable goods orders didn’t drop last month. They
were flat in October (minus transportation orders). This implies that if some
companies cut back on spending heading toward the fiscal cliff, others
increased or resolutely maintained theirs. Business investment increased in
October in key categories: 0.9% for computers (the first rise in demand in five
months), 2.9% for machinery and 4.1% for electrical gear.7

Consumer confidence may be translating into personal spending. This month, the Conference
Board’s consumer confidence index reached a mark of 73.7; the highest level
since February 2008. Chain-store sales were up 3.3% during Thanksgiving week
from the week before, and up 4% from last Thanksgiving week according to the
International Council of Shopping Centers.7
If we get a fix for the fiscal cliff, 2013 could be promising. There is a real sense that the
U.S. economy is headed for better times, along with the market. Morgan Stanley
had projected the S&P 500 ending 2012 at 1,167; that certainly seems
doubtful. It now forecasts the index finishing 2013 at 1,434. Other year-end
2013 projections for the S&P are even more bullish: Deutsche Bank is seeing
a year-end finish of 1,500, Bank of America Merrill Lynch sees the S&P
reaching 1,600, and Piper Jaffray thinks it can make it all the way up to
There are economists who think 2013 could be a key
transitional year, a step toward a more robust economy at mid-decade. If solid
economic indicators inspire companies and consumers to spend and invest more,
next year might surprise even the most ardent stock market bears.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily
represent the views of the presenting party, nor their affiliates. All
information is believed to be from reliable sources; however we make no
representation as to its completeness or accuracy. Please note – investing
involves risk, and past performance is no guarantee of future results. The
publisher is not engaged in rendering legal, accounting or other professional
services. If assistance is needed, the reader is advised to engage the services
of a competent professional. This information should not be construed as
investment, tax or legal advice and may not be relied on for the purpose of
avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.


1 –

2 –


4 –

5 –

6 –

7 –

8 – [11/27/12]


Retirement Plan Accounts recover from recession

December 3, 2012 ( – The 2008 stock market
crash wiped out trillions of dollars in defined contribution (DC)
retirement accounts.

When the stock market eventually bottomed out in the first
quarter of 2009, DC retirement accounts had lost about $2.7 trillion,
31% of their peak 2007 value, according to a brief from the Urban
Institute. Using data from the Federal Reserve’s 2012 Flow of Funds
Accounts and the Russell 3000 Index, the organization found that despite
the ongoing turbulence in the stock market, DC account balances have
increased since 2009, reaching $9.5 trillion at the end of the third
quarter of 2012—9% above their peak value in current dollars, but still
1% below their peak when adjusted for inflation.

The report said individual retirement accounts (IRAs)
account for the majority of DC account assets. With the stock market
crash, their share increased from 54% to 58% between the start of 2007
and 2009.

The impact of the stock market crash was even more
dramatic for defined benefit (DB) plans; the report said DB assets
declined 37% from their peak 2007 value. In contrast to DC accounts, DB
accounts have not fully recovered from the crash and the recession. In
the third quarter of 2012, their value was still only $2.3 trillion—15%
below their 2007 value in current dollars and 23% below their 2007 value
adjusted for inflation.

The Urban Institute speculates DB plan freezes since 2007 likely contributed to this shortfall.

Blog Archives

Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA. - SIPC - Brokercheck