Retirement 
10
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High Yield IRAs

Nest Eggs!All throughout tax season, from about mid-February to early-April, I received letters from my banks telling me it that I was running out of time to contribute to an IRA. This happens every year because brokers and banks want your business. They want you to open your IRA with them. The letters pitch various products and the most intriguing one I saw this year was a letter from Everbank advertising a high yield IRA.

Everyone likes a high yield IRA, right? Reminds me a little of this insight into retirement wealth:

  1. Open high yield IRA.
  2. ???
  3. Profit!


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 Retirement 
12
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Consequences of a Large Roth IRA Conversion

Retirement Nest EggsYou won’t have a bigger fan of a Roth IRA. I’ve been a fan of them every since my dad told me about them over ten years ago. Back then, the appeal was in not having to keep track of capital gains and losses for tax purposes. As a kid with little understanding of personal finances and a healthy appreciation for the law, that seemed paramount. Nowadays, it’s the tax free investing that appeals to me and every other fan of the Taxpayr Relief Act of 1997.

The Roth IRA conversion income limits were removed this year and mainstream media pounced all over the topic of Roth IRA conversions. Until this year, you could convert if you earned less than $100,000, but this was the year the floodgates were opened. It seems like a no brainer, but there are significant and immediate consequences to converting a large amount into a Roth IRA. The allure of tax free investing and accrual is very strong, but there are many considerations many experts are overlooking.

At the core of these consequences is your income. Roth IRA conversions have a funny way of increasing your income significantly, especially if you’re making a large conversion from an IRA you’ve accumulated for years. Even five or ten years of diligent saving can result in a boost you are likely unprepared for. While it’s straightforward to calculate how much additional taxes you’ll owe, that’s simple math, it’s harder to see all the consequences of a much higher income.

All of these consequences are income based benefits you may lose as a result of higher income. Even if these don’t apply, hopefully they will get your brain on the right track so you can think of the benefits you might lose from having a higher income.

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 Retirement 
23
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Best Investments for Retirement Accounts

Nest EggsWhen I started working after college, it was a bit of a stretch to contribute to both my 401(k), to get my employer match, fully fund my Roth IRA, and build up a small cash cushion (I would later learn these are called emergency funds). I pushed to do it because my parents drilled this lesson into my brain as a young adult – save money today because you never know what will happen tomorrow. (I thought I dodged a bullet by avoiding the dot com boom and bust but I was later rewarded for my diligence with the largest recession since the Great Depression!)

So… what do I do with the money in my Roth IRA or my 401(k)? You will never be able to predict the future with certainty so you will never know beforehand which investments will perform the best. You will, however, know the cost of owning those investments and the cost of taxes if you pick correctly. The best we can do is have a good plan, execute that plan, and pick investments that provide the most value for the price that you pay in fees and taxes.

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 NEWS 
113
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Working Americans Have Almost No Retirement Savings

CNN Money reported last week that 43% of Americans have less than $10,000 in retirement savings, which is a statistic provided by the Employee Benefit Research Institute in their Retirement Confidence Survey (2010 results). If that figure isn’t scary enough, it appears that 27% of workers have less than $1,000. Both figures are increases from 2009, when 39% had less than $10,000 and 20% had less than $1,000 a year ago.

While the statistics are sobering, it does show how much the recession has hurt a lot of people. If you lose your job, the first thing to go after your emergency fund is probably going to be your retirement savings. Keeping a roof over your head and food in your stomach is going to take precedence over retirement tomorrow.

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 Retirement 
25
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Roth and Traditional IRA Contribution Limits

Retirement Nest EggsI, like many other personal finance bloggers, am a huge fan of IRAs because they give you a tax-advantaged opportunity to save for your retirement. Both types, the Roth and the Traditional, offer tax benefits that are hard to find anywhere else. The Roth IRA offers you to reap the growth of your retirement assets tax free while the Traditional IRA gives you an immediate tax benefit for contributing to your own future.

There’s a reason why the IRS puts contribution limits on IRA accounts. As many of you know, you have until April 15th to make a contribution to your Traditional or Roth IRA for the 2009 tax year. What you may not know is how much you’re able to contribute.

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 Retirement 
44
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Four Factors to Consider Before Roth IRA Conversion

Retirement Nest EggsNow that the income limitations have been lifted and anyone can convert a tax-deferred Traditional or Rollover IRA into a tax free Roth IRA, a lot of blogs, gurus, and news sites have been celebrating the Roth IRA conversion. I have always held the Roth IRA in high regard because it’s a fantastic retirement investment vehicle that offers a little more predictability. I pay taxes on my contributions today and I get all the appreciation tax free, what’s not to love about it?

Unfortunately, whether or not you should convert a Traditional or Rollover IRA to a Roth IRA is not as clear cut. There are a lot of important factors many people are overlooking when it comes to Roth IRA conversions. While you may gain some tax benefits in your retirement assets, it does come at a cost to your overall financial picture. To ignore those could be extremely detrimental. Let’s take a look at the four major factors to consider before you convert to a Roth IRA.

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 Retirement 
40
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Roth IRA Contribution Limit Phaseout Calculator

If you’re confused about how much you can contribute to your Roth IRA this year, this calculator can help!

As you probably know, you have until tax due day, April 16th, to make a contribution to your Roth IRA for 2012. What you might not know is how much you are able to contribute, if your income (modified adjusted gross income) happens to be within the phaseout range for your filing status. There are a lot of websites that will give you the ranges, the rules for calculating your personal limit, but I couldn’t find a simple calculator that did the math for me… so I built one.

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 Retirement 
89
comments

2010 Roth IRA Conversion Rules

2010A year ago, when I met with my accountant, we spent some time talking about our retirement, our goals, and how we were going to reach them. In looking at our retirement accounts, I saw that the vast majority of our savings were in tax-deferred accounts like 401(k)s and Rollover IRAs. We only had a very small percentage in tax-free Roth IRA accounts, which I’ve always said was probably the best retirement account in existence. Where else can you invest in the stock market and have your gains be entirely tax free? Nowhere. :)

Right now, you can convert a traditional IRA to a Roth IRA as long as your adjusted gross income is under $100,000. The $100,000 limit applies whether you are single or married, tax filing classification wise, which makes it one of the few limits that is the same for both. So if your AGI is under $100,000, then you can convert today and you don’t have to wait for 2010.

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