On April 29th through May 1st I attended a conference in Chicago with Ed Slott’s Elite IRA Advisor Group. Ed Slott’s Elite IRA Advisor Group is a group of financial advisors dedicated to solving the country’s biggest and most complex financial problem – effectively managing the distribution of assets from Individual Retirement Accounts (IRAs).
Over the next fourteen years, the number of Americans reaching retirement age will increase by 80 percent. The majority of the money these people will use for their retirement income is invested in IRAs and 401ks. The problem is that no one knows how much tax they are going to have to pay when they start taking minimum distributions.
In 2010, the maximum tax rate on ordinary income is 35%. In 2011 and 2012 the maximum rate will be 39.6%. Starting in 2013, there will be an additional tax of 3.8% which will be assessed on investment income. There is no doubt about it, taxes are going up.
IRAs are unlike other investments because they are riddled with taxes. Even worse, no one really knows what tax they will be paying when the time comes to take the money out. The question people need to ask is this: “Is it better to take the money out of my IRA and move it to a Roth IRA in 2010 or leave the money in my IRA and pay the taxes when I take the money out?” The advantage of the Roth IRA is that you never pay taxes on withdrawals and your children never pay taxes on withdrawals. With a traditional IRA you are forced to take a required minimum distribution beginning at age 70 . This is when the government collects on the taxes that were deferred when you put your pre tax money into the IRA.
But at what rate will you be taxed when the government forces you to take money out? How much of your IRA withdrawals are going right back to the Federal government? When in your wheel chair at the Sunset Acres Retirement Resort, the last thing you will need is higher taxes on your IRA distributions.
Considering a Roth IRA? If you want help thinking it through, call an investment advisor who is committed to learning about IRA issues and attends workshops to keep up with the latest tax law changes.
You need to do this before it is too late.