To Roth or not to Roth

Most of us have probably heard some rumblings of the new tax laws in effect for Roth IRA’s in 2010, and for good reason. The new laws open up the Roth IRA option for many taxpayers who were previously excluded due to income. While many websites claim the Roth IRA is THE best retirement option around, the reality is a number of factors can play into the determination of whether a Roth IRA is right for you. Even if a Roth IRA is the better option overall, additional considerations should be taken into account for determining whether the cost of the conversion is significant enough to deter you from making the switch. There are many different factors that should be taken into account:


This is one of the many sites sold on the Roth IRA, but it does provide a simple calculator that will give you a basic idea of which type of IRA would be more beneficial for you (this does not address the costs of conversion):

http://www.smartmoney.com/personal-finance/retirement/which-ira-is-best-7968/

This is a similar concept, but it takes into account the cost of conversion. It also provides the estimated tax you would pay as a result of the conversion (note this is a very rough estimate, but at least provides a general idea of what a conversion may cost you in taxes):

http://www.schwab.com/public/schwab/planning/retirement/iras/roth_ira/roth_ira_conversion/considerations/roth_conversion_calculator

This article is also sold on the value of the conversion, but it does provide a great overview of the specific rules related to converting a Roth IRA to a Traditional IRA:

http://finance.yahoo.com/expert/article/moneymatters/16201

Below is a discussion of some of the reasons you may decide the conversion is not for you. It addresses some specific factors that may indicate that a Roth IRA would not be the best choice for an individual:

http://moneywatch.bnet.com/retirement-planning/blog/retirement-roadmap/dont-rush-into-roth-ira-conversions/2594/

While many sites tout the benefits of the conversion, there are a number of reasons a Roth IRA conversion would not be in your best interest. The article below details some of the issues that are often overlooked when deciding whether a conversion is in their best interest:

http://www.marketwatch.com/story/12-traps-to-avoid-when-converting-to-a-roth-2010-01-21

Lastly, the article below details how a Roth IRA can be converted back to a Traditional IRA and the benefits of this ability:

http://money.cnn.com/2009/01/08/pf/expert/Roth_recharacterization.moneymag/index.htm

For many taxpayers this move might make a lot of sense, for others it may be in your best interest to stay with a Traditional IRA and spare yourself the costs of conversion. If after reading the above you are still confused, there are a number of financial professionals more than willing to provide their opinion on the topic. At the very least, this is a concept worth reviewing as the tax implications can be large and long lasting.

Deductions for the down and out of work

The clichés surrounding the concept of remaining optimistic in the face of hardships are evidence of the number of ways truly difficult situations can befall any of us. I suppose they're overused because they work-but that might just be the optimistic view. Regardless, as difficult as losing a job can be, there are a few bright points on the tax front. While you may not rejoice at the ability to claim additional deductions as a result of a decline in income, there are ways to use the situation to lessen your tax burden:

We'll start with the bad news. Unemployment benefits are considered taxable income; however, a portion of benefits is excluded, this amount is detailed in the link below:

http://www.irs.gov/newsroom/article/0,,id=205633,00.html

And now for the good news (or at least the optimistic view). Many deductions are only available if they exceed a certain % of Adjusted Gross Income. For the taxpayer who experienced a significant decline in income during the current year this may open up a host of deductions that had previously been unavailable. The below article provides a host of deductions that may help the unemployed:

http://www.usatoday.com/money/perfi/columnist/block/2009-02-09-unemployed-tax-breaks_N.htm

When one job is lost another is gained, or that's the idea anyway. There is a deduction available for job hunting expenses and the article below does a great job of spelling out what qualifies:

http://online.wsj.com/article/SB10001424052970204731804574388880246070404.html

For those of you that moved for that new job, moving expenses may be deductible if certain conditions are met. This article details the qualifying tests that determine whether the expenses are deductible as well as which expenses qualify:

http://www.smartmoney.com/personal-finance/taxes/writing-off-moving-expenses-9565/

And finally, for those job hunters that either returned to or stayed in school, a number of education deductions are available for the qualified:

http://www.kiplinger.com/features/archives/2007/01/educationtaxopedia.html

The above probably isn't enough to convince the employed to run out and quit their jobs in hopes of obtaining access to these breaks, but it does provide a bit of relief for those that qualify. Maybe the clichés had something going for them after all.

Tis the season

The countdown has officially started, 97 days until all the local newstations trek down to the local post office to document the influx of last minute taxpayers getting their filings in at the latest acceptable moment. For those of us that chose this as a profession this is Tax Season, the time of year where our entire world consists of 1040's, 1120's, W-2's, 1099's and the like. With that said, the beginning of tax season always brings with it a host of articles to help the underinformed to take advantage of the multitude of credits, adjustments, and deductions that are available to those who qualify. The following is a selection of a few such articles that may be of assistance to those of you looking to avoid the last minute rush to the post office:

This article was designed to be read before year-end, but still may be helpful for those of you who may qualify for the listed tax breaks:

http://online.wsj.com/article/SB10001424052748704795604574519852193088202.html?mod=article-outset-box

This article is particularly helpful for the newly self-employed:

http://www.businessweek.com/magazine/content/10_03/b4163065985047.htm

Another basic overview, but this one comes with a printable card of commonly used deductions and the income limits in effect for the 2009 tax year:

http://www.journalofaccountancy.com/Issues/2010/Jan/20091930.htm#

And last but not least, some moves that can be made in January to help in the preparation of this years (or possibly next year's) taxes:

http://www.marketwatch.com/story/tax-moves-to-make-in-january-2010-01-08?pagenumber=1

Hopefully these are of some assistance. If you find yourself in over your head or have questions please do not hesitate to contact me. Happy Tax Season!