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Securities and advisory services offered through FSC Securities Corporation, Member FINRA/SIPC, and a registered investment advisor. Integrity Wealth Management.

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Presentation on theme: "Securities and advisory services offered through FSC Securities Corporation, Member FINRA/SIPC, and a registered investment advisor. Integrity Wealth Management."— Presentation transcript:

1 Securities and advisory services offered through FSC Securities Corporation, Member FINRA/SIPC, and a registered investment advisor. Integrity Wealth Management is not affiliated with FSC Securities and is not registered as a Broker Dealer Ralph G. Adamo, President & CEO Integrity Wealth Management 3991 MacArthur Blvd. Newport Beach, CA (949)

2 No bank guaranteeNot a depositNot FDIC / NCUA insuredMay lose valueNot insured by any federal government agency

3 ■ Funding ■ Distributions ■ Discussion Agenda

4 Roth IRAs ■ Established 1/1/98 ■ Similar to traditional IRAs except for these important differences: No deductible contributions Tax-free qualified distributions Owner has no required distributions

5 FundingContributionsConversions Rollovers from employer plans Rollovers from Roth 401(k)/403(b) Four Ways

6 Contributions for 2009 ■ $5,000 (or $6,000 if 50 or older by end of year) ■ Two requirements Earned income at least equal to amount contributed Below modified adjusted gross income (MAGI) thresholds

7 MAGI Phase-out Ranges ■ Married filing jointly $166,000–$176,000 ■ Single $105,000–$120,000

8 What Is MAGI? Plus certain deductions, including deductions for: Traditional IRAQualified bond interest Minus RMDs from IRAs Roth conversion amounts Roth rollovers from employer plans Adjusted gross income (AGI)

9 Conversions ■ Rollover of assets from a traditional IRA, SEP-IRA or SIMPLE IRA to a Roth IRA Two-year period must be met if converting a SIMPLE IRA ■ IRA owner pays taxes on pretax dollars ■ 10% penalty does not apply

10 Conversion Process IRAIRA Roth IRA 2) Direct rollover 1099R reporting No 60-day rule 3) Indirect rollover 1099R reporting 60-day rule applies No 12-month restriction 1) Redesignation 1099R reporting

11 Conversions for 2009 Convert to Roth IRA ■ Two requirements MAGI is $100,000 or less Single or file jointly with spouse » Married filing separately lose ability to convert

12 Conversions After 2009 Convert to Roth IRA ■ No MAGI limits Anyone can convert regardless of income level IRA Roth IRA

13 Conversions in 2010 You can pay tax on conversion in 2010 OR split the bill, defer tax and pay: ■ One-half in 2011 ■ One-half in 2012

14 What Will Your Tax Rate Be? “New” income tax rates scheduled to sunset: “old” rates scheduled to return to your return Current highest rate: 35% Sunset highest rate: 39.6% (2011 and later)

15 Conversion Caution ■ Using assets outside of the IRA to pay tax: Reduces taxable estate Maximizes long-term tax-deferral ■ Using IRA assets to pay tax may: Subject some assets to income taxation Incur a 10% early withdrawal penalty

16 Converting IRA After Age 70½ RMD amounts cannot be converted or rolled to a Roth IRA IRAIRA Roth IRA 1.Distribute RMD amount from IRA 2.Convert balance to Roth IRA RMD

17 You Can Now Convert from an Employer Plan Two Sets of Rules: Conversion rules Rollover rules of the plan from which rollover occurred Beginning 1/1/08

18 Who Let the Roth Out? You can now also convert an inherited account ■ Applies only to eligible rollover distributions from employer plans ■ May be rolled to an inherited Roth IRA ■ Which distributions must be taken from Roth IRA? ■ Does it make sense for you?

19 Are You Looking to Accelerate a Deduction? Section 691(c) deduction ■ Itemized deduction for estate taxes paid ■ Conversion causes you to pay income taxes sooner, BUT also accelerates use of this deduction, potentially reducing tax bill in half The federal estate tax exemption amount is $2,000,000 in 2008 and increases to $3,500,000 in The highest federal estate tax rate is 45% in 2008 and The federal estate tax will be repealed on 1/1/10 until 12/31/10. Beginning 2011, the federal estate tax will be reinstated with a federal estate tax exemption amount of $1,000,000 and a maximum estate tax rate of 55%. Congress continues to discuss and consider legislation that, if passed, could change the estate tax exemption and estate tax rates for 2010 and beyond.

20 Conversion Do-overs Recharacterization ■ First do-over By tax return due date, including extensions Reconversion ■ Doing over the do-over In year following year of conversion 30 days after recharacterization

21 Do-over Timeline Conversion Period 10/15 Last day to recharacterize Reconversion Period After 30 days 1/1 to 12/31 Year 1 Year 2 1/1 to 12/31

22 Reconversion Examples ScenarioConversionRecharacterizationReconversion 14/1/098/1/091/1/10 24/1/0912/25/091/24/10 34/1/094/15/105/15/10 Time restrictions for eligible recharacterizations and the earliest reconversion date

23 Roth 401(k)/403(b) Established 1/1/06 No MAGI limits for contributions Required distributions Tricky rollover rules

24 Roth IRA Distributions ■ Qualified ■ Nonqualified ■ Required (for beneficiaries)

25 Qualified (Tax-free) Distributions Two requirements 1.Five years since you established a Roth IRA 2.Distribution is made for one of the following reasons: Age 59½ or older Disabled Deceased First-time home buyer

26 Nonqualified Distributions If you take a distribution but fail to meet requirements for a qualified distribution, then the distribution is made in the following order: ■ Regular contributions ■ Conversion and rollover contributions 10% penalty if within five years ■ Earnings Taxes and 10% if no exception

27 Tricky Rollover Rules ■ New Roth IRA, then new five-year period ■ Existing Roth IRA, then rollover tracks Roth IRA five-year period Roth 401(k)/403(b) Roth IRA

28 Tricky Rollover Rules Qualified Distribution Rollover amount treated as basis in Roth IRA Nonqualified Distribution Rollover amount divided into basis and earnings in Roth IRA

29 DRAC Rollover Example Amount includes $65,000 after-tax contributions and $35,000 earnings ■ Qualified distribution $100,000 included as Roth IRA basis ■ Nonqualified distribution Basis and earnings track to Roth IRA

30 You May Wish to Get Started In anticipation of a DRAC rollover, establish a Roth IRA now with either: ■ Contributory Roth IRA ■ Nondeductible IRA that is then converted to Roth IRA BUT beware of the aggregation rule

31 Required Distributions at Death ■ Death before required beginning date (RBD) rules ■ Designated beneficiary (DB) May use five-year rule or life expectancy ■ No DB Must use five-year rule

32 Death Distributions and the Five-year Rule ■ Required distributions waived for 2009 ■ Five-year rule is currently a six-year rule For deaths occurring between 2004 and 2009

33 Nonqualified Death Distributions Roth IRA owner dies before end of five-year period beginning with: ■ First taxable year for which a contribution was made ■ Year of conversion contribution from traditional IRA or rollover

34 Qualified Death Distributions ■ Spousal rollover Earlier of spouse’s or decedent’s five-year holding period ■ All others Decedent’s five-year holding period

35 Who’s Your Beneficiary? ■ Designated beneficiary (DB) Spouse Non-spousal individual Qualifying trusts ■ Non-DB—estates, charities, etc.

36 Spouse ■ Lump sum ■ Five-year rule ■ Inherited Roth IRA Annuitization Spouse’s recalculated life expectancy » Delayed until owner would have reached age 70½ ■ Rollover

37 Non-spousal Individual ■ Lump sum ■ Five-year rule ■ Inherited Roth IRA Annuitization Life expectancy of beneficiary

38 Qualifying Trusts as DBs ■ Valid under state law ■ Irrevocable at death ■ Identifiable beneficiaries ■ Trust documentation by 10/31 of year following year of death

39 Qualifying Trusts ■ Lump sum ■ Five-year rule ■ Trust-owned inherited Roth IRA Life expectancy of oldest trust beneficiary

40 Non-designated Beneficiaries Lump sum Five-year payout

41 Multiple Beneficiaries Five-year rule DB and non-DB Life expectancy of oldest All DBs

42 Important Dates for the Year AFTER Death DB determination 9/30 Separate accounts 12/31

43 Case Study $750,000 Roth IRA ■ 75-year-old owner dies having named two beneficiaries Grand- daughter, Age 25 Son, Age 50

44 Opportunity for Separate Accounts ■ Separate accounts established by 12/31 of the year following the year of owner’s death ■ Son has 34.2 years during which to take distributions ■ Granddaughter has 58.2 years during which to take distributions

45 Thanks, but No Thanks Disclaimers ■ Son executes a qualified disclaimer ■ His sons, ages 22 and 20, inherit his interest ■ Separate accounts established by 12/31 deadline ■ 22-year-old son’s distribution period is 61.1 years ■ 20-year-old son’s distribution period is 63 years

46 Roth IRA Advantages Potential for profits without tax No required lifetime distributions Not included in definition of income for taxation of social security benefits

47 Roth IRA Disadvantages No deduction for contributions Pay tax on conversions

48 Do the Math Analysis is required, because everyone’s situation is different Assumptions include: ■ When distributions will be taken ■ What tax rates will be at the time of distributions ■ Earnings during the interim

49 Possible Opportunities ■ You don’t need your traditional IRA for income and wish to leave it to someone. ■ You need your IRA to fund your credit shelter trust. ■ You are willing to pay income tax on conversion to reduce your estate (and thus your estate tax). ■ You have charitable deduction carryovers, investment tax credits, etc., that will offset income on conversion.

50 In Summary ■ Better understanding of funding Roth IRAs ■ Roth conversions ■ Distributions and beneficiary options ■ Decisions should be reviewed with your tax and legal advisors before making any changes

51 Securities and advisory services offered through FSC Securities Corporation, Member FINRA/SIPC, and a registered investment advisor. Integrity Wealth Management is not affiliated with FSC Securities and is not registered as a Broker Dealer Ralph G. Adamo, President & CEO Integrity Wealth Management 3991 MacArthur Blvd. Newport Beach, CA (949)


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