RSG welcomes
you to the December 2003 edition
of The Retirement Strategist. We hope you
enjoy
our actionable ideas for implementing a
better retirement stategy. Remember that
time can be your greatest friend; the sooner
you implement excellent retirement savings
ideas, the better.
- Timely
Investment Tip$: Year End Tax Strategies - Putting Your Roth IRA to
Work for You
- Business
Owner Strategies: Unlimited Retirement Plan Contributions?
- Retirement
Strategies Group
Service Highlight: How We Can Help You
TIMELY
INVESTMENT TIP$
Year End Tax Strategies:
Putting Your Roth IRA to Work for You
With
the year coming to a close, it’s
time to get to work on year-end tax
strategies. And your Roth IRA presents
you with two distinct opportunities: 1) trim your current tax
bill or 2) trim your future tax bill.
Unfortunately, to utilize either strategy
requires a loss in your Roth IRA.
But if you have lost money in your Roth
IRA, at least you can let
Uncle Sam share in your pain. Here’s
how.
Strategy #1: Drain Your Roth,
Deduct Your Loss
Has the market downturn
over the last two years turned your Roth IRA
accounts into merely shadows of what
they used to be? If so, your
Roth IRA losses may qualify you for an
income tax deduction. To
learn how this works, let’s consider
an example. If you initially opened
a Roth IRA with a balance of $150,000
as a result of a conversion
in 1998, today it may only be worth
$30,000 due to market
losses. If you were to cash in this
Roth IRA today, you would realize a $120,000 tax loss that may
be deductible from your 2002
federal income tax.
To learn if you are
eligible for this potential income tax
deduction of $120,000,
you’ll need to go through
an eligibility analysis; Uncle Sam makes
you clear a few hurdles before they’ll
let you realize this loss. Three
hurdles to be accurate.
Remember, DO NOT cash in
your Roth IRAs BEFORE discussing this
tax strategy with your accountant and determining
if you’re eligible
to use this strategy. If you are eligible,
you must act
quickly as
this must be done by year-end.
*This strategy requires
cashing in all of your Roth IRA accounts,
not just
those you select.
Strategy #2:
Convert To A Roth IRA Now At
A Discount
If the value of your traditional
IRA has declined significantly
as a result
of recent market losses and
yet you believe it will
recoup these losses
over the long run, converting
your traditional
IRA to a Roth IRA
by year-end may be a smart
move. Although doing
so will
trigger taxes
on your IRA, this short-term
cost will likely be offset
by the long-term
benefits derived from converting
to a Roth
IRA now
at a discount
and enjoying future years
of tax-free growth
and income.
Of course,
the taxes you’ll owe
upon conversion are also
lower than what
they would have been a few
years ago.
To see how this strategy
could work for you, let’s
consider an example.
If you owned an IRA that
was once worth
$150,000, but due
to market losses is now
worth only $75,000,
converting
this
IRA to
a Roth IRA now would enable
all future market
gains to
be realized entirely
tax-free. In other words,
if over time your $75,000
Roth IRA grows
back to a value of $150,000,
or to $200,000,
or to an even higher
amount, you’ll owe
no income taxes whatsoever
on these gains.
In short, the immediate
cost of conversion from
a traditional IRA
to a Roth IRA will be offset
by the many years
of tax-free
growth and
income that a Roth IRA
will provide in the
future.
If you want to convert
your traditional IRA
to a Roth
IRA on a discounted
tax basis, you
will need
to
withdraw
funds from your
traditional IRA by year-end
and then
contribute
these
monies to a
Roth IRA within 60 days
of the withdrawal.
BUSINESS
OWNER STRATEGIES
Unlimited
Retirement Plan Contributions?
Maximizing Retirement
Plan Contributions Through Knowledge Of The Tax Code
When it comes
to retirement planning, many business owners often perceive their “business” as
their “retirement plan.” Build
the business over time, sell it, and then retire on the proceeds is a simple and
common approach that our experience counsels against taking. The only
reliable way to build a retirement nest egg is to fund a retirement plan
with real financial assets.
Key to making
this work, of course, is working with professionals who know and understand
the ins and outs of the tax code. Working with knowledgeable professionals
will enable you to both maximize pre-tax “qualified” plan
contributions while simultaneously layering in unlimited “non-qualified” contributions
as well.
The Rules of the
Road
The integration
of the various kinds of retirement plans available– defined contribution
plans (i.e. 401(k) plan), defined benefit plans (which guarantee a specific
retirement benefit), and non-qualified plans (which allow for unlimited
contributions) – all begins with knowing the rules of the road.
In order to establish these rules, RSG’s approach to establishing retirement strategies for business owners starts with a
clean piece of paper and asks a simple but important question: “How much
would you like to put away for retirement every year?"
By starting
with the retirement savings goal in mind, we can then design a
strategy that makes maximum use of the tax code while also embracing
the reality of your company’s cash flow, objectives in rewarding
employees, and thoughts on executive benefits for key employees.
The end result is the design of a retirement savings strategy
that often enables owners of a business to invest hundreds of
thousands of dollars more than they had previously for their retirement.
To better illustrate
how this approach can work for you, we have prepared a case study of
a recent assignment for a privately-held company of 38 employees and
7 partners. After we reviewed this company’s existing retirement
strategy and brought in our actuarial firm, we were able to design and
implement an integrated retirement plan that allowed for total plan
contributions of $860,000 per year, with $732,000 of this amount contributed
in behalf of the partners. Call RSG today for a copy of the case study
- Maximizing Retirement Plan Contributions.
HOW WE CAN HELP YOU
With
the myriad of financial programs and information available to you, investing
and retirement planning can become rather confusing, but we can help. We
specialize in helping our clients reach their financial goals by designing
specific programs based on each individual's goals.
You have already
taken the first step in requesting to receive our monthly e-bulletin. If
you would like additional information including a free review of your current
portfolio, information on brokerage services, mutual funds, tax-deferred
annuities, or have a question on a specific financial program, please contact
Retirement Strategies Group. |
