In some circumstances, individuals who have
converted a traditional IRA to a Roth IRA this year may achieve
significant tax savings by "undoing" the transaction and later
reconverting. Consider this strategy if the value of your Roth IRA has
dropped, or if your marginal tax rate will be lower next year. You have
until the due date -- including extensions -- for filing your 1999 tax
return to switch back to a traditional IRA.
What's the Benefit?
If the value of your Roth IRA is less than when you converted, making this
election will allow you to pay taxes on the IRA's lower market value at
the time of reconversion. Here's an example of how it might work.
Let's say that, in June, Abe converted his
$50,000 traditional IRA to a Roth IRA. In September, after the account's
value had declined to $40,000, he transferred the balance back to a
traditional IRA, deeming the original transaction transfer between two
traditional IRAs. He then reconverts the new IRA to a Roth. When Abe files
his return, he'll owe tax on $40,000 instead of $50,000, giving him
$10,000 less in taxable income. |
Making a Correction
The election can also correct an invalid Roth IRA conversion. Your Roth
IRA conversion will be considered invalid if your adjusted gross income
for the year (not counting the income from the conversion) exceeds
$100,000, or if you're married and you and your spouse file separate
income-tax returns. If you don't correct an invalid conversion, the IRS
will generally assess a 10% early distribution penalty on the taxable
portion of the distribution form your traditional IRA. (Some expections
apply.) And, if the improperly contributed amount remains in the Roth IRA
after the due date of your tax return, you will also be hit with a 6%
excise tax on that amount.You're generally
allowed only one reconversion in 1999. However, a 1999 reconversion made
to correct an improper converstion doesn't count toward this limit.
We would be happy to help you determine if you would
benefit from this strategy. Please call on us. |
| Q & A
Q: I travel extensively in the U.S. and
abroad and like to check my e-mail while I'm away. It's getting
expensive. Any suggestions?
A: Hotel charges for dialing long distance to
your local Internet service provider can add up. There are three
possibilities you may want to check into. One is using a large
national provider that will give you access to local numbers while you
are traveling. Of course, the provider may not have a number in some
of your destinations, and you'd have to keep track of many numbers.
Another option might be to use a Web-based e-mail utility that allows
you to access your regular e-mail account through any terminal that is
connected to the Web. |
Last, check
with local ISPs to see if any belong to a global roaming service. With
this service available, you could access a local number to check your
mail. Global services cover different areas, so choose one that will
give you access in the places where you travel most frequently.
Q: My company just received a
renewal notice on our group health insurance plan. The premium jumped
far more than we were anticipating. What steps can we take to bring
costs more in line with our budget?
A: Many other businesses share
your dilemma. To counter rising costs, you should investigate several
alternatives. One obvious solution would be to make your employees pay
a greater share of the coast. If that's not attractive to your
management because of the morale and |
recruiting
problems that might result, consider offering less expensive coverage
with fewer options. You could also try to find a cheaper provider --
perhaps an HMO if you now have a point-of-service or preferred
provider plan. Last, if you don't already belong to an insurance
purchasing pool (a chamber of commerce or industry group, for
instance), see if there is one you can join. As a member, you might
realize significant premium savings because of the increased
negotiating clout such pools have with insurance companies. However,
before changing providers, be sure to assess the provider's track
record on quality of care. |
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