Image by agrilifetoday via Flickr If you’re in a relatively low tax bracket and have funds in a traditional IRA or Qualified Retirement Plan, chances are you might be in a position to set yourself up with tax-free income via a Roth Conversion. One method that can work in your favor is the “fill up the bracket” technique, and if you want to do this for 2011, you’re running out of time, it must be done by December 30 (December 31 is a Saturday). The way this works is that you determine what your regular income is, and then look at where you are with regard to your tax bracket. If there’s still some “headroom” in the current bracket, you could convert an amount, equal to or less than your “headroom”, from your traditional IRA to a Roth IRA. This way you are controlling the tax rate at which your […]
ira account
Enabling a Tax-Free Roth Conversion With a Mixed-Contribution IRA
Image by @dino via Flickr If you have an IRA that includes contributions that are both pre-tax and post-tax (deductible and non-deductible) as well as growth, you may have an option available to you that will allow for a tax-free Roth conversion. As you know, a Roth conversion can be done with IRAs that have mixed contributions, but when this is done, you will owe tax on a portion of the rollover – the portion that includes the pre-tax money. Even if your pre-tax money is in a totally separate traditional IRA, the conversion of your post-tax money will be partly taxed due to the cream-in-the-coffee rule, which requires that all IRAs be considered as one with regard to distributions (including Roth conversions). If you happen to have a 401(k) plan (or other Qualified Retirement Plan) that you’re participating in, you may have the option available to roll over your […]
The Problem with Naming Your Estate the Beneficiary of Your IRA
Image by Dieter van Baarle via Flickr While it seems to be a simple idea to just make your estate the beneficiary of your IRA, thereby allowing you to make adjustments to your final beneficiaries via your will – there is a problem that will arise if you decide to take this route. Most often this line of thinking is used because there is the assumption that the money will be treated the same via your estate as it would if you specifically named the beneficiaries on the IRA documentation. The problem is that IRAs are (as we’ve discussed in many other posts) much different from your other assets, with special rules that apply ONLY to IRAs, and of course, those special rules extend beyond the grave. The Problem with Distribution Here’s the problem: in order to arrange for an extended period of distribution to your heirs (i.e., a stretch […]