Saturday, August 14, 2010

Tax Report: How the Experts Are Handling Their Own Roth IRA Conversions - WSJ.com


Interesting discussion on Roth IRA's.

This article originally appeared in the Saturday, August 14, edition of the Wall Street Journal.

What strikes me about this report is that none of the experts are simply converting all of their assets.

For example, while I am a fan of Ed Slott (I have read a couple of his books on IRA's), it seems to me that his conversion ideas involves a lot of paperwork, and lots of chances for administrative issues (6 different Roth accounts, plus keeping his original IRA open):

An IRA advisor and vocal Roth advocate, Slott, 56 years old, says he converted nearly all his six-figure IRA in January. With his advisor's help, he separated the funds into a half-dozen Roth accounts, each for a different asset class or sector such as energy, health care or real estate. Slott says he plans to monitor his Roths and then reverse the conversions (called "recharacterization") of accounts that have dropped in value or lagged behind. The tax law allows this move as late as Oct. 15 of the year after the conversion date. So he has a 21-month window to decide which accounts to undo, and how much tax to pay. Yet his taxes will be figured as of his conversion date last January. "It's the way to get the biggest bang for my tax buck," says the Long Island, N.Y., accountant. But he left a few hundred dollars in his regular IRA so that it could receive any money from reversed conversions, which cuts paperwork.

The other advisors all seem to be doing partial conversions or, in the case of Natalie Choate, not sure she will do the conversion process at all since she is reluctant to write the tax check.

As has been discussed several times here, the Roth conversion decision is more complex than it would appear, even to the experts.

Tax Report: How the Experts Are Handling Their Own Roth IRA Conversions - WSJ.com