By Nancy Coveleskie
We’ve all heard this saying before, haven’t we? How do you apply in your everyday life?
I’ve been working on a project the last few days and have asked some friends and acquaintances for assistance. I surveyed everyone via email on the following:
The #1 biggest concern I have right now about making my financial goals a reality is (please pick the most important one):
- Being able to retire without the fear of running out of money
- Knowing what to look for in a financial expert?
- The state of the economy and knowing where my money is safe
- Having losses that I can’t recoup
What are your other concerns about money?
As I sifted through the responses to the second question, people were rightly concerned about having losses they can’t recoup, but also confused about what to do with their retirement accounts. It occurred to me that many people may not know how to turn an apparent loss (losing value in their retirement accounts) into a potential opportunity.
One of my favorite ways of creating tax-free income in the future is to use a Roth Conversion from existing qualified assets. For many officers, this could be an IRA account of yours or your spouse. If your spouse has a retirement plan at work, he or she may have “in service distributions” that could qualify. In addition if you are already retired, your Deferred Comp, if properly structured, may be converted in quantities small enough to make the taxes manageable. Since the value is most likely down after the market’s tumble, the amount you claim on taxes is also down.
Remember, the name of the game is to pay taxes while you still have deduction and to have tax-free income when you no longer have them, such as when the kids are grown and the house is paid off.
If you were in a 25% tax bracket, every dollar lost in value, when converted, just saved you 25 cents! Is your account still down? Yep. Do you still have to pay taxes? Yep. Do you have to sell your positions in order to convert? NO. So now when the markets do come back, your growth will be on the tax-free side! Always get competent tax advice prior to making changes to the tax status of your accounts.
How’s that for a good recipe? Now that we have that problem solved, go sit on your deck with a cool glass of lemonade.
If you want help with how to take advantage of this idea, call our offices at 216-621-4440.
Filed under: Cashflow and budgeting, Money, Police retirement planning, Taxation of Retirement Benefits, Taxes Tagged: | deferred compenation, IRA, lemonade, lemons, planning, recipe, retirement, roth converstion, roth ira, tax planning, taxes
