September 2012

Here is September’s review of blog posts. We hope you find something you enjoy!

U.S. News MoneyWhy Children Should Be Part of Your Retirement Plan – Your children will hopefully be there for you if you need them in your retirement. Try to include them in your retirement planning so they are aware of your situation.

 U.S. News MoneyNew Retirees: Avoid These Mistakes – Retirement can lead to many unexpected financial and emotional difficulties. Avoid some of the stress and take these potential mistakes into consideration.

U.S. News Money3 Ways You Could be Sabotaging Your Retirement – You may not think the choices you make today could be harmful to your future retirement, but that may not be the case.

U.S. News Money5 Often Forgotten Retirement Planning Details – Even if you take the time to plan your retirement, there are always going to be overlooked details.

Please let us know if you have a favorite financial blog that you think we should be reading.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

When you are approaching retirement, everything that you have to prepare may seem a little overwhelming. You’re lifestyle is going to change dramatically, and so are your income and expenses.

On Wednesday, David Ning had a post over at U.S. New – Money entitled “5 Retirement Expenses Many People Forget.” We thought it was a great look at some things many new retirees may not consider until it’s too late to plan for. Here are our favorite points:

  • “Some expenses will disappear. Speaking of mortgages, these debts, like every other, are meant to be paid off. This means that not only will the payment stay the same as long as you have a fixed rate, but you don’t have to account for the expense indefinitely either.”

Our comment – It’s best to go into retirement as debt free as possible. The loss of income you’ll be facing will be all that much more daunting with the worry of a major mortgage or credit card payment. Try to pay down as much of your debt as possible while you are still working.

  • “There are still taxes in retirement. Many people will still need to file a tax return in retirement, even though they don’t receive a regular paycheck anymore. Social Security, pensions, IRA and 401(k) withdrawals, and gains when you sell your investments are all taxable at different rates. Taxes can be one of the biggest retirement expenses, so make sure to include them in your retirement budget.”

Our comment – Even if your income has dramatically decreased, your tax situation may become more complicated in retirement due to all the different sources of income you will receive. Consider hiring a tax advisor to help you navigate your retirement taxes, at least for the first few years. And remember to consider the cost of an advisor when planning your expenses!

  •  “Lifestyle changes will lead to different types of expenses. Think about how you will spend your time in retirement and how your expenses will change. You will no longer commute to work, so you might save some money on gas. But you could pick up a hobby that requires new equipment or go out more for dinner because you have more time on your hands. Many people account for travel in their retirement budget, but not everybody remembers to factor in extra movie costs because of the newfound free time.”

Our comment – It’s important to control your spending while in retirement and living on a reduced, often fixed, income. When you are accounting for the extra money spent eating out and going to the movies, don’t forget to compare those expenditures to your other expenses so you don’t exceed your income.



  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Last week, we revisited the idea of converting traditional IRA dollars to a Roth IRA. We discussed who we feel would do well to convert and who shouldn’t convert. This week we will speak to those who are considering converting (deadline for a 2012 conversion is 12/31/12).

Partial Roth Conversions

For many people, converting all of the dollars in your traditional IRA is infeasible. Maybe you don’t have enough cash on hand to pay for the taxes generated or maybe the conversion will push you into a higher tax bracket. Whatever the reason, don’t let it stop you from doing a conversion this year.

A partial Roth IRA conversion is just how it sounds: instead of converting your entire traditional IRA, you convert only a portion of the dollars to a Roth IRA. This option can be very attractive to many, especially those that may have a large traditional IRA account.

When a Partial Conversion Makes Sense

There are a few situations where a partial conversion can make the most sense:

  • When you can’t afford the tax on a full conversion – Since you will be paying income tax on the converted dollars, converting an entire account can create a pretty hefty tax bill for you. If you feel conversion makes sense for you, but you only have enough cash on hand to pay the tax on a partial conversion, go ahead and do the partial conversion. You don’t have to wait until you have enough cash on hand to do a full conversion.
  • When a full conversion pushes you into the next tax bracket – This point can get complicated depending on your income, deductions, etc. If you have a $50,000 IRA you want to convert, but you are $20,000 away from the next tax bracket, adding those extra dollars in income will push you into the next tax bracket. You will then be paying more in taxes on those dollars (which no one wants!). Instead, figure out how much you can convert while still keeping yourself within your current tax bracket.
  • When your current income/tax situation allows you to convert without paying any tax – For some people, between their income, deductions, etc., converting traditional IRA dollars to a Roth IRA will not cost them anything in taxes. This is because their current income vs. deductions, etc. eliminates all their tax liability, allowing some wiggle room for conversion dollars to be added to their income. If you are in this situation and are interested in converting, don’t let the opportunity pass you by!

Tips for a Partial Conversion

Before making the final decision to do a partial conversion, please take the following into consideration:

  • Reevaluate your situation every year. If you convert $10,000 this year, don’t assume you should do the same next year. You may be able to convert more or may have to do less.
  • Talk with your tax advisor before making a move. Partial conversions can become complicated, especially for those with more complex tax situations. Never make a conversion unless you know for sure that the tax consequences will be.
  • Keep your Traditional IRA and Roth IRA Conversion at the same investment institution. This often simplifies both paperwork and reporting and makes partial conversions over several years easier to manage.
  • Keep recharacterization in mind. If you make a partial or full conversion by the 12/31/12 deadline, and for any reason decide it was not the right decision, you have until 10/15/13 to recharacterize that account, which simply means the converted dollars will be moved back into your traditional IRA and you will not owe any tax.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.


Two years ago, we did a post about the pros and cons of converting your traditional IRA dollars to Roth IRA dollars. We wanted to revisit that topic again now, as the deadline for converting an IRA is 12/31/12, and you may have to do some leg work before you’re ready to make a move.

This week, we just want to revisit our previous post. Next week we’ll discuss partial Roth IRA Conversions in more detail, since we feel like for many people, a partial conversion will be more realistic.

Post from 10/11/2010 (Updated to reflect 2012 information):

 Roth IRA Conversion – Why you should or shouldn’t convert

 Last week, we talked about Roth IRAs and why they are good investment vehicles. Today, we’ll talk about Roth IRA conversions.

The biggest issue in a Roth IRA conversion is tax. Since traditional IRAs are usually funded with tax deductible contributions, when you distribute the money from the IRA, you will owe income tax on it. The same goes for conversions. Since you are converting those funds into an after-tax Roth IRA, you must pay income tax on the amount you convert. This is a consideration that must be carefully reviewed before you decide to make any conversions.

Who Shouldn’t Convert

If you are in the following situations, converting your traditional IRA to a Roth IRA probably isn’t a good option for you.

  •  If you don’t have enough cash on hand to pay the tax – You will have to pay 100% of the taxes owed on your 2012 conversion with the filing of your taxes (April 15, 2013). However, withholding the money you owe in taxes out of the conversion dollars is not advisable, so if for any reason you don’t believe you will have enough cash on hand to cover the taxes, don’t make the conversion. In other words, if the only way you’ll be able to pay the tax is by withdrawing the funds from the portfolio, it’s not worth doing.
  •  If converting pushes you into a higher tax bracket – If $15,000 of additional income will take you into the next highest tax bracket, and you are thinking about converting a $20,000 IRA, you’ll be paying additional dollars in taxes due to the higher rate. However, if conversion fits your needs, you can convert part this year and part next year to avoid paying at a higher tax rate.
  •  If you know your tax bracket will decrease – If you want to convert, but expect a decrease in income over the next few years, that will bring you into a lower tax bracket, it probably makes sense to wait. That way you can still convert the money and pay less in taxes.
  •  If you plan on leaving the funds to a charity – If you plan on leaving your IRA to a charity after your death, you should leave the money in a traditional IRA. The charity will receive the money from the IRA tax-free, so it doesn’t make sense for you to convert to a Roth.

People who should consider converting

Here are some situations where conversion to a Roth IRA might make sense.

  •  If your tax bracket will be increasing – As the opposite to the tax bracket point above, if you are expecting to be in a higher tax bracket in the future and are interested in converting, you should do it now to avoid paying more tax (if you can currently afford the tax and it doesn’t push you into a higher tax bracket!).
  •  If you don’t need the Required Minimum Distributions (RMD) – If you don’t anticipate needing to take the RMD from your traditional IRA account at age 70½ for income purposes, converting to a Roth may be a good move. You can protect your account balance by letting it grow undisturbed by yearly RMDs, and you will still have access to the money should the need arise, but you’ll get it tax-free!
  •  If you plan on your IRA being inheritance for your heirs – A Roth IRA will provide a better inheritance vehicle because your heirs will receive the money income tax free. If you are thinking about your IRA as more of an estate planning tool, another consideration should be what tax bracket your heirs will be in. If they will be in a higher tax bracket than you when they inherit an IRA, they will be paying income tax on the distributions. You may want to consider converting to pay the taxes now so your heirs can have an income tax-free inheritance.

We just want to emphasize again that the tax consequences of a Roth IRA conversion should be carefully considered before making a move. If you have questions or need help figuring out the taxes on a conversion, talk to a tax professional.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.