Financial Flies

So I’ve been thinking about how we all have financial black flies in our lives that buzz around our homes and annoy us.  One or two of them may not seem like a big deal.  But the wrong fly on your food can spread disease and make you sick.  Some financial flies are much more dangerous and deadly than a disease carrying house fly.  Some financial flies are so small we may not even realize they are there.  But often these are the worst kind. 

Here’s some examples of financial flies that really need to be swatted down:

• incorrect beneficiary names on IRA’s, 401K’s, and life insurance policies.
• incorrect titling of accounts.
• paying too much in taxes.
• paying too much in investment fees
• too much credit card debt
• improperly diversified portfolio
• no identity theft protection plan
• too much exposure to one company’s stock
• too much exposure to rising interest rates
• out-dated or non-existant estate planning documents
• spending too much money
• no retirement income plan

Financial flies like these are much like the black house flies buzzing around your kitchen.  If you ignore them for too long they seem to multiply.  Keeping up on swatting them down as you find them makes your life and your personal financial planning a lot easier.

What Can You Do?

If you recognize that some of these financial pests are bothering you, or you’re not sure about a few of them, then it would be a good idea to have a conversation with a Certified Financial Planner professional about your situation.  Call us today at 1-866-983-4222, and we’ll help you forever swat down the financial flies that are harassing you.  And don’t be surprised if we discover you have more flies in your house than you knew about.   :)

Pay Now

When you convert part of your IRA or 401(k) to a Roth, you have to pay taxes now on the amount you convert.  Many people feel that tax rates are likely to go higher in the future (especially since our tax rates today are the lowest we’ve seen in decades).  Everyone knows about our government’s debt situation…it’s not good,  not to mention social security and Medicare.  To pay for all these things, they’re going to have to increase taxes at some point.  So to pay your taxes now may end being a pretty good deal.

Play later

Paying taxes at a lower rate today may sound nice, but the real benefits of the Roth IRA conversion are long term.  As you know, Roth IRA’s grow tax free.  That means that when you eventually pull your money out of the Roth at some point down the road, you don’t have to pay any taxes on ANY of the earnings!  This is especially attractive for younger individuals who have time to let the money grow and compound tax free.  In general you need to plan on the money growing for about 10 years or longer before you plan to use it in order to benefit from paying the taxes now.  The more tax rates go up in the future, the sooner you will “break even” so to speak, and come out ahead.

Out of Pocket, But Spread Out Over Two Years

When you convert part of your IRA or 401(k) to the Roth you have to pay the taxes out of your pocket.  You cannot have the taxes taken out of your IRA account.  This can limit the amount you may realistically be able to afford to convert.  If you have savings in an after-tax account, you could use money from that to pay the taxes also.  The best part is, you can spread that tax payment over the next 2 tax years!  So you don’t have to pay them all this year, which helps.

A Higher Tax Bracket?

Be careful as to how much you convert.  Not only do you have to pay the taxes on it out of pocket, but converting to the Roth could bump you into a higher tax bracket for this year.  Whatever amount you convert will be added as taxable income to the rest of your taxable income for the year.  So if you make $80,000 at your job, and you convert $20,000 to a Roth, your taxable income is now $100,000 for the year.  Be sure to consult a tax professional before you make a conversion so that you don’t regret doing it later.

Here are the 2010 tax rates:

Talk to your personal financial planner today to see if making a Roth IRA conversion might make sense for you in 2010.