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To: kollmhn who wrote (150544)	5/3/2011 6:28:10 PM
From: tom pope	1 Recommendation Respond to of 206322

That's a strange thing to say. You should hope for improved circumstances rather than reduced income. Thanks for saying that. I've always been totally baffled by the standard retirement specialists' advice to plot your retirement strategy around the fact that you'll be in a lower bracket. Sez who? Also, the greatest advantage of a Roth conversion is the simplicity of it. No more minimum distributions, simpler record keeping, no penalties if you make a mistake - can't beat that with a stick.

To: kollmhn who wrote (150544)	5/3/2011 7:52:54 PM
From: Bearcatbob	Read Replies (1) \| Respond to of 206322

OT: Retirement income and income management. I have now spent two + years in retirement and I love it. Taxation and retirement income management income is something I have some experience with. However, barring some new black swan event - this year will be a new experience as option income is all ordinary income. Here are some thoughts: 1. I have learned to capture "tax losses" to "manage income". For instance - I have had XOM and have captured the loss when it fell - but I have reentered after the wash time. Yes it is a loss - but it comes back. In the wash window one could use CHV. Capturing losses is critical for tax purposes is critical. 2. Given 1 above - as it stands now I will not be able to shelter this years gains - lol - famous last words? Last year I took an IRA with drawl to goose my income so that my deductions were at a higher level. If I cannot shelter this years income I will not draw down my IRA and will pay ICT through the nose. What the heck - my life time goal is to pay a million dollars in ICT some year. I doubt that will ever happen. I have been working on estate planning and looking for ways to give our money to our family and not the government. One way is Life Insurance - but - I hate to give up capital when it can be used so profitably to generate call/put income. Any ideas on sheltering income for inheritance purposes is appreciated. Bob

To: kollmhn who wrote (150544)	5/3/2011 9:43:15 PM
From: longnshort	1 Recommendation Read Replies (1) \| Respond to of 206322

"But what I wonder is whether, when all of that fails and the bills from all of our other social spending, war spending, foolish tax policies and declining dollar value comes home to roost, won’t someone see taxing all the “rich” people with Roth IRAs as a potential political solution? I think a perception still exists that Roth IRAs or 401(k)s are for “rich” people with “extra” savings. What politician wouldn’t think to tax Roth withdrawals “just a bit” to preserve Social Security? Wouldn’t a 5% tax on Roth IRAs be easier to sell than a 5% reduction in Social Security benefits?" bripblap.com Is The Roth IRA a Total Con? January 10, 2009 - 3:46pm — bex I've been reading a lot about economics and finance lately... Retirement planning gets a lot more complex when you run your own business! In any event, I've learned several things that made me highly skeptical about commonly held advice about retirement savings plans. In particular, I now believe that nobody should ever invest in a Roth IRA. This probably goes against what a lot of financial planners say, but I have my reasons. Why? First, lets go over the differences: Traditional IRA: This is a pretty good deal... these let you purchase mutual funds of stocks and bonds, and take a tax deduction when doing so. Your money grows tax-free while its in the fund. At age 59.5, you can take money out of the fund without penalty, and you pay federal taxes on it as income. Roth IRA: This is a relatively new idea... identical to the Traditional IRA, except for two things. First, you cannot take a tax deduction when you put money into it. However, since you paid taxes up-front, you can take money out of the fund, and not pay taxes on it! Wow, sounds pretty good, huh? For example... let's assume some dude named Bob Lemonjello is 30 years old, and puts in $5,000 per year into a IRA. This is the current maximum Bob can put into his account. We could assume a reasonable 8% growth over the next 30 years, yielding a total of about $610,000 by retirement. If Bob did this as a traditional IRA, that $5000 would be tax-deductible every year... saving him about $50,000 in taxes before he retires. Not bad... but when Bob takes out money from your IRA, it will be taxed... so the government will probably get $150,000 of his nest egg. If Bob instead did this as a Roth, he wouldn't get a tax deduction, so he'd wind up paying approximately an extra $50,000 in taxes during his working years... but then he has $610,000 of tax-free cash! Woo hoo! The government can't touch a dime of that! Even better, he could have a traditional IRA, then do a rollover immediately before retirement. Sure, he'll have to pay $50,000 in back taxes when doing the roll-over, but for that $50,000 investment, he gets to avoid paying any taxes on his $610,000 nest egg! Bwa ha ha ha ha!!! Bob is free... FREEEEEEEEEE!!! I have one question: does anybody actually believe that the future US government would let Bob keep his Roth money, and not make him pay any taxes on it? Does anybody actually believe that the US government will never change the tax laws, and that they will sit idly, and not demand a piece of that easy money? Reality time: Roth IRAs and Roth 401Ks are amazing tax-free investments, which have become wildly popular amongst people in every tax bracket... which is exactly why future governments will not keep their promises. Let me remind you... until 1983, Social Security benefits were considered tax-free income... then Ronald Regan signed a law which made half the recipients pay taxes on their benefits! Bill Clinton later boosted it, so that 85% of Social Security recipients pay some kind of income tax. Face facts... When a government wants money, it will find clever ways to tax you. They will be called "Roth Withdrawal Fees," or "Conditional Rollover Fees," or just plain "We got all the guns! Gimme Gimme Gimme!" The entire benefit of the Roth IRA rests on the belief that the government won't change the tax laws. I for one have zero faith that the government will keep their promises about the Roth. If you want the sure thing, go for a Traditional IRA. This has an immediate tax deduction at exactly the moment when you are in a high tax bracket, along with tax deferred growth. You'll pay taxes when you take money out, but in retirement you'll almost certainly be in a lower tax bracket. So what do you think? Will the US Government keep it promises? If the tax laws change, will a Roth IRA be worse than a Traditional IRA?

To: kollmhn who wrote (150544)	5/3/2011 9:45:38 PM
From: longnshort	1 Recommendation Read Replies (1) \| Respond to of 206322

The Future of the Roth IRA Will the Roth turn out to be a bad idea with future changes in the tax law? Some people advise caution in moving to the Roth IRA because of the possibility of future changes in the tax law. What if Congress decides to tax Roth IRA earnings? What if we move to a flat tax, or a national sales tax? Changing Times Some people worry about this possibility: years from now, with the baby boom generation retiring in droves and huge amounts of investments tied up in Roth IRAs where earnings will never be taxed, Congress will be desperate to raise revenues. Some form of tax will be imposed on Roth IRAs out of sheer necessity. After all, the same thing happened to social security benefits. There's no guarantee that something like this won't happen. I think it's very unlikely, though. The policy decision to tax social security benefits was on very different grounds. Congress never enticed people to enter the social security system with the promise that benefits would be tax free. There wasn't a bait and switch. The initial decision was to create a safety net and not tax the benefits; later Congress decided that people at certain income levels should pay tax on part of the earnings. That's very different from reneging on a promise to leave earnings free of tax. From time to time, Congress has changed the law to cut back on benefits of various types of retirement plans. These changes have generally been accompanied by generous transition rules to protect those who relied on prior law. Similar treatment seems likely if Congress decides at some point to cut back or shut down the Roth IRA. Flat Tax, Sales Tax Is there a flat tax or a sales tax in our future? If so, will it reduce rates so dramatically that people will wish they never heard of the Roth IRA? Politicians have been talking for years about fundamental tax reform. For a while it was fashionable to promise to make taxes so simple you can file on a postcard. A few years back, House Majority leader Dick Armey vowed to rip the income tax out by its roots. How long can the current tax law withstand this assault? A long time, I'm afraid. There are a couple of problems with getting rid of the income tax. One is that no one has come up with a viable alternative. Another is that the income tax is woven so completely into our entire economy that it would take many years to switch to a different system, assuming we were willing to do so. All of the alternatives to the present income tax that have been proposed have different flaws, but most have one major flaw in common: they shift the tax burden from the wealthy to those who are less wealthy in a major way. Cynics tend to believe that wealthy Americans are able to avoid paying income tax, as Leona Helmsley was quoted as saying: "Only the little people pay taxes." The reality is quite different. There's no shortage of shenanigans among wealthy taxpayers, of course, but when all is said and done, the highest income Americans pay a whopping share of the income tax. The various flat tax and sales tax proposals would change that dramatically. When people take a close look at the flat tax, it starts to lose its shine. One of the big complaints about the income tax is its complexity. But that's also one of the big problems with getting rid of it. The income tax is woven into our economy in innumerable ways. People always mention the millions of Americans who count on being able to deduct their home mortgage interest, and the charities that rely on the contribution deduction to keep donors interested. That's just the tip of the iceberg. There are literally trillions of dollars invested in various types of arrangements designed to provide income tax benefits of one kind or another. Pension plans, rental property, plant and machinery, government bonds — the list goes on and on, and reaches every facet of government and industry. Change is possible, of course, but a sweeping change of the type many politicians like to suggest would require many years of study just to plan for it, and at least a decade of transition. Notably, for all the talk in Washington about repealing the income tax, Congress hasn't taken even the first step toward developing a plausible alternative. And there's another possibility the cynics generally fail to mention. Congress could make changes that will make the Roth IRA more attractive. We may see tax rates in the future that are higher than they are now. That would mean a windfall to those who converted before the higher rates took effect. Read my lips: it could happen. Conclusion This page is different from most on this web site, in that it's based more on my opinions than on my knowledge. I've tried to draw on that knowledge to support the opinions, but they remain just that: opinions. "Your mileage may vary." I offer these thoughts out of a sincere belief that a small but significant minority of people who would benefit from converting their IRAs may fail to do so out of unfounded beliefs about the likely future course of the income tax system. My hope is that reflection on the points made above will lead some of those people to make a choice that will ultimately provide them with handsome financial rewards. fairmark.com

To: kollmhn who wrote (150544)	5/3/2011 9:50:56 PM
From: longnshort	1 Recommendation Respond to of 206322

The Roth IRA Must Die! by Thomas Schmidt by Thomas Schmidt Recently by Thomas Schmidt: The Age of Centralization It was during a recent email conversation with a prolific LRC blogger that I discovered that my favorite tax haven, Campione d'Italia, is no more. Campione is a delightful chunk of Italy, formerly the property of the bishop of Milan, nestled entirely within the Swiss province of Ticino on the shores of Lake Lugano, what the Italians prefer to call Ceresio; though north of Minneapolis, palm trees grow without protection along the lake due to its effect as a giant solar heat sink. Years back, the only way to get to it from Italy without touching Swiss soil was to take an aerial tram built across Swiss territory. Its currency is Swiss, the franc, and its banks likewise; there used to be no income tax levied on non-Italian residents because a casino in the territory yielded enough revenue that taxes were unnecessary. For foreigners unable to get Swiss residence, it was the closest thing to living in that country of stable money, mandatory gun ownership, and low crime. Sadly, as I learned from my correspondent, casino revenues have dropped, and its status as a tax haven is greatly reduced. We discussed other locales that avoid taxing the income of foreign residents; as I suggested earlier, places like Dubai might use the lack of personal income taxation to siphon off the most productive citizens from the West, leading to the collapse of the welfare/warfare state without these "Islamists" firing a shot. I learned of a few places I did not know of before, and suggested to him a "country" that also offers income free from taxation. That "country" is the Roth IRA, which allows a US citizen to put aside money on which he has already paid income tax into an account where all accumulations on the principal are tax free, if withdrawn under certain conditions. Fairmark explains: "when you take money out of a Roth IRA, the first dollars you take out are considered to be a return of your regular contributions. You don't have to meet any special tests to receive those dollars free of tax. You can take them out any time, for any reason, without paying tax or penalties." To get the earnings out without paying taxes, you must meet two tests: withdrawals must come at least five years after you opened the account, and must be one of the four "qualified" distributions. They are "(d)istributions made on or after the date you reach age 59½; (d)istributions made to your beneficiary after your death; (i)f you become disabled, distributions attributable to your disability; ‘(q)ualified first-time homebuyer distributions.'" (As always, check with your attorney for current tax law.) If you like this site, please help keep it going and growing. So it would seem easy to live the good life: just buy that winning lottery ticket in a Roth IRA and collect your millions tax-free. Unfortunately, conventional IRAs are restricted, usually, to stocks and bonds; self-directed IRAs allow for a wider range of investments, but not lottery tickets or, among others, "investments … includ(ing) artwork, rugs, antiques metals, gems, stamps, coins, alcoholic beverages and other collectibles." However, according to IRAMyWay, things like "Residential Real Estate, Commercial Real Estate, Raw Land, Trust Deeds / Mortgages, and Mortgage Pools, Private Notes and Loans, Private Stock Offerings, Limited Liability Companies (LLC), Limited Partnerships (LPs), Tax Certificates, … and Commercial Paper" can all be held in a self-directed (Roth) IRA. Imagine two friends, Fred and Joe, each age 60 with a Roth IRA that had been opened ten years previously, with a balance of $200,000. Fred's self-directed IRA could write a mortgage on Joe's house, while Joe could write a mortgage on Fred's house; at 10% interest, each IRA would earn $20,000 in interest annually. The interest, earnings, could be paid out tax free to each man; at the same time, each might deduct (check with your tax advisor!) the $20,000 he paid in interest from his Federal taxes, creating $20,000 in tax-free income. More creative scenarios are left to the reader as an exercise; suffice it to say that the combination of qualified Roth distributions and self-directed investments could easily lead to a situation where the Federal state legally saw many of its citizens avoid taxes entirely. There are limits; as SmartMoney outlines, "(e)xamples of what the IRS (or the Department of Labor) may consider to be prohibited transactions include the following: (h)aving your IRA buy stock or other assets from you or sell them to you; (h)aving your IRA lease assets from you or to you; (h)aving your IRA buy stock in a corporation in which you have a controlling interest; (h)aving your IRA lend to you or borrow from you; (h)aving your IRA engage in transactions with certain related parties and/or family members." (Some examples of related parties and family members are given here.) Even so, mutually-beneficial friends could take advantage, as well as cousins, uncles/aunts to nieces/nephews, etc. Using the Federal Gift Tax exclusion, a great aunt or uncle could provide the benefits of some tax-free income to a young person otherwise unable to take money out of a Roth IRA directly, or by leaving a qualified Roth to a younger person upon death. This situation is treacherous for the Federal Government. As Gary North outlined, 2010 is the year that Social Security will take in less net revenue to the government in FICA "taxes" than is paid out in benefits. North proposes a few solutions: "(l)et's see if Congress will kick the can some more. Let's see if Congress passes hikes in the FICA tax rates in 2010, or extends the wage base that pays the tax beyond today's $106,800 limit. My guess: Congress will kick the can. The deficit will grow." What is certain is that out-of-control spending will continue, and meaningful benefits for those on Social Security will have to be funded from somewhere. My guess for the most likely future source is a wealth tax on the retirement accounts of those who have distrusted the word of the Federal Government to pay benefits, but who have curiously trusted that same government with regard to retirement account security. Remember that Social Security benefits themselves were once tax-free. The promise of tax-free earnings from a Roth IRA must likewise be reneged upon if the Federal State survives. January 1, 2010 Thomas M. Schmidt [send him mail], a native of Brooklyn, is not a tax advisor and has not offered any tax advice in this article, but enjoys observing the schizophrenic effects of Federal tax policy.