Last Minute Tax Tips

Posted on by in Income Tax, Roth IRA Conversions and tagged , , , , , , .

Big thanks to Lange team member Steve Kohman for being a part of our radio show The Lange Money Hour: Where Smart Money Talks on Wednesday night, April 8th on KQV am 1410. Steve is so dedicated to his clients that we had trouble prying him away from the office to do the show.

We’re glad that Steve finally agreed because his tax advice was excellent. He’s a technical machine – answering questions off the top of his head with no notes!

So is it too late to do something about your 2008 tax return?  Not according to Jim and Steve. For starters, you can still fund an IRA for 2008.  Individuals can contribute up to $5,000 — $6,000 if you’re 50 or older.

Steve also pointed out that many tax deductible medical expenses are overlooked.  Double-check to make sure you haven’t forgotten long-term care insurance premiums, prescription expenses, Medicare insurance premiums, prescribed weight-loss programs, therapy and even miscellaneous improvements to your house (adding a wheelchair ramp, for instance).

The tax code can be tricky to navigate. This year, there are several new developments, including The Housing and Economic Recovery Act of 2008. First-time home buyers will have until December 1, 2009 to claim a new refundable tax credit for a qualifying home purchase.  There are certain restrictions, so make sure you check with your tax professional.

The Worker, Retiree and Employer Recovery Act of 2008 allows retirees to suspend their Required Minimum Distribution for 2009.  Jim and Steve believe this has created an ideal opportunity for seniors to make a Roth IRA conversion.

What should you do if you realize you’ve made a mistake on your return?  Simply file an amended return.  To make it even easier, you have three years to take care of the paperwork.

If you think you could work night and day on your return and still not get it done by April 15th, you can always file an extension. It’s important to note, though, that it’s an extension to file – not an extension to pay.  Uncle Sam still wants you to estimate your taxes and, if you miscalculate, you could be subject to a penalty and interest.

We don’t know what came over Jim and Steve, but they offered listeners who are PA residents a free tax extension!   The Lange team is offering to take care of all of the paperwork and will even deliver your return hand-stamped. Then, after April 15th (and some much needed R&R), one of the accountants will meet with you and take a closer look at your return. If you’re interested, call the office at 800-387-1129.

Jim and Steve also covered various strategies for Roth IRA conversions, ideas for 2009 tax planning, what documents your tax professional really wants you to bring to the office and which one of them has already finished his personal tax return and which one hasn’t.

If you missed any part of the show, a rebroadcast is set for Sunday, April 12th from 9-10 a.m. ET and the audio will be available on retiresecure.com early next week.

The next show is set for Wednesday, April 22nd from 7-8 p.m. ET with special guest, author and money manager, Paul Merriman. Paul promises to make his prediction on when the economy will recover and explain the common mistakes that investors make.

Our Debut Show was a Big Success!

Posted on by in Tax Law and tagged , , , , , , , .

Thanks again to Ed Slott, ‘America’s IRA Expert,’ for taking the time to join us for the premiere of our radio show “The Lange Money Hour: Where Smart Money Talks” which aired on March 25th. Ed was a great guest and Jim and Ed ended up covering a lot of excellent tax-saving strategies. If you missed it, be sure to check out the audio that’s posted on retiresecure.com.

In their first appearance together, Jim and Ed explored how seniors can exploit the new law suspending required minimum distributions for 2009, Roth IRA conversion strategies for 2010, how to protect your IRA by using life insurance, planning for after-tax dollars inside a retirement plan after retirement and how to pick a good financial advisor. They even chatted about Bill Mazeroski and his 1960 ninth-inning, World Series-winning, home run against the New York Yankees (believe it or not, it’s a baseball analogy that relates to IRA investors today.) Come to think of it, it’s amazing that they were able to cover all of that in just one hour!

By the way, Ed Slott’s latest book Stay Rich For Life: Growing and Protecting Your Money in These Turbulent Times comes with a companion workbook that is very helpful. Jim was actually using it during the show!

Exciting news for the next show which is scheduled to air on Wednesday, April 8th from 7-8 p.m. ET on KQV 1410am. One of our Lange team members has agreed to join Jim to talk about taxes. Steve Kohman is a CPA, Certified Specialist in Estate Planning, Certified Valuation Analyst and a Resident Insurance Provider. He’s also an incredible “numbers-runner” – crunching the numbers to determine the best plan of action for you.

One week from the tax deadline, Jim and Steve will explain why it’s not too late to do something about your 2008 return. They’re happy to take your questions, so feel free to call the studio line at 412-333-9385.

Catch Jim and Steve on Wednesday, April 8th from 7-8 p.m. ET with a rebroadcast on Sunday, April 12th from 9-10 a.m. ET. Thanks to everyone who’s been listening around the country online at kqv.com. We’ve recently had listeners check in from Florida, Michigan, New Jersey, Ohio and Texas – we love hearing from you!

Keep listening!

Don’t forget that the audio to all of these shows is always posted on retiresecure.com.

Tax-Free Growth With Roth IRA Conversions

Posted on by in Estate Planning, Roth IRA, Roth IRA Conversions.

With another free Roth IRA workshop coming up at the end of March, we thought it would be a good time to review why Roth IRA’s are so important – and why they are about to be even more important for wealthy seniors.

Practically all boomers can enjoy tax-free growth by taking advantage of Roth IRAs, Roth 401(k)s, and Roth IRA conversions. This article focuses on Roth IRA conversions. Two types of boomers can benefit. First are boomers who currently have less than $100,000 of modified adjusted gross income (MAGI.) The second type is most everyone else.

If your MAGI is in excess of $100,000, you will have to wait until 2010 when wealthy Americans will be granted a unique opportunity. For the first time, you will qualify for a Roth IRA conversion regardless of your income. Previously, taxpayers with a modified adjusted gross income of $100,000 (or more) were not permitted to make a Roth IRA conversion. The compelling reason to pay attention is that individual IRA owners who have modified adjusted gross incomes of more than $100,000 can enjoy a huge windfall by taking advantage of this conversion opportunity.

The Roth IRA Changes in a Nutshell

For tax years after 2009, the Tax Reconciliation Act permits all taxpayers to make Roth IRA conversions, regardless of income level. If you make the Roth IRA conversion in 2010 you will be given the option to pay all the taxes on the conversion with your 2010 return, or with the returns for the two subsequent years by claiming the conversion income on the 2011 and 2012 returns.

What Happens When You Make a Roth IRA Conversion?

When you make a Roth IRA conversion, you pay income tax on the amount you choose to convert. While my standard advice “to pay taxes later” still represents my strongest recommendation for successful long-term planning, I have always made a “philosophical exception” for Roth IRAs. With respect to Roth IRA conversions, the better advice for many individuals is pay taxes now. While each case will benefit from an individualized analysis on the merits of the conversion, the critical feature of the Roth is that, once the initial taxes are paid on the conversion, income taxes will never be due on the growth, capital gains, dividends, interest, etc. This will be particularly advantageous to high-income taxpayers.

How Will the Roth IRA Benefit the Owner in His or Her Lifetime?

How much better off will you be during your lifetime? Assume you are in the top tax bracket of 35% (earning well over $100,000), you have $1,000,000 in your IRA, and you have the funds to pay the income tax on the Roth IRA conversion from money outside of the IRA. If we assess the advantage of the $1,000,000 conversion, measured in purchasing power, you would be $517,298 better off in 20 years. However, in today’s dollars, as adjusted for 3% annual inflation, this advantage is $286,416. In 30 years you are $725,616 ahead. See the graph below:

What are the benefits to the Roth IRA Owner’s Family?

For the very high income family, the long-term benefit of a Roth IRA conversion is potentially phenomenal. An estimate is that a taxpayer’s family could benefit by as much as twice the amount converted.

Please consider this scenario for the beneficiary. If you die 20 years after you make the conversion and you opt to leave the Roth IRA to your 45-year-old child, who spends it modestly, how much better off will your child be? See the graph below:

By age 85, he is $11,742,363 better off in actual dollars or $1,993,067 in today’s dollars, as adjusted for 3% inflation. This advantage is about twice the original amount converted. Clearly the potential advantages are significant, and for wealthy individuals, the legacy advantage of the Roth is difficult to beat.

For more information about our upcoming free Roth IRA workshop, check out the homepage at retiresecure.com.