THURSDAY, SEPTEMBER 16, 2010
KLMNO
EZ SU
WASHINGTON BUSINESS Path to converting traditional IRAs to Roths full of ‘ifs’
I’
ve read so many surveys about people neglecting to save for retirement that my
eyes hurt. Although the research high-
lights a simple truth — you have to save for your retirement—how are you supposed to do right when the tax rules are so darn complicated? For example, I recently wrote
about a change in the tax code allowing high earners to convert their traditional IRAs and other similar workplace retirement- saving vehicles to Roth IRAs. There is much appeal to having a Roth, because unlike traditional IRAs, withdrawals are not taxed. It’s a good tax strategy for many. But “there are a lot of nuances
to conversion,” says ChrisMcDer- mott, senior vice president for investor education, retirement and financial planning for Fideli- ty Investments. I would use theword“madden-
ing.” Still, peoplewhoare heeding the advice to save and invest so theywon’thave tocompletely rely on the government in their old age must try to understand the rules. So I expected and received
some questions about Roth con- versions. To help answer them, I turned toMcDermott. Can the amount of my Roth
rollover propel me into a higher tax bracket? The quick answer is yes. But
the full answer depends on how much of your traditional IRA you are converting. First, here’s a little back-
ground. On Jan. 1, the income limits for converting traditional 401 (k) or other workplace sav- ings plans to a Roth IRA were removed. Previously, you could not switch from a traditional IRA to a Roth if your modified adjust- ed gross income on your federal income tax return was more than $100,000. The rule change opened a back
MICHELLE SINGLETARY The Color of Money
door for high-income earners whohad previously been shut out of Roth conversions. But (and there is always a “but” with this stuff ) if you are converting funds to a Roth, you have to pay income tax on the pretax contributions and earnings that are converted. The amount of tax is based on your tax bracket in the year you convert. Therefore, the amount you convert, which becomes tax- able income, can push you into a higher tax bracket. It’s not easy figuring out how
the conversion will affect your tax bracket because you might not know which bracket you are in until you get all your year-end tax information. Here’s another nu- ance: If you convert this year, you can include half of the conversion
amount on your 2011 return and the other half on your 2012 re- turn. But keep in mind that you could end up in a higher tax bracket during this time—there- fore, your tax liability might be higher than if you had paid it all at once. My advice, as I wrote before, is
to get help from a tax professional familiar with the rules of a Roth conversion. Why shouldn’t I use money
from my traditional IRA to pay the taxes? McDermott, like other experts,
advises against converting if the only money you have to pay the tax is with proceeds from the conversion, because using the proceeds will reduce the amount that can potentially grow federal-
ly tax-free in the Roth and offsets any tax savings you might gain by converting. But just as important, ifyou’reunder591/2
,money that is
not converted and instead held back to cover taxes is considered an early withdrawal by the IRS. That can trigger a 10 percent penalty. This, of course, further reduces any benefit you might have received from the conver- sion,McDermott said. Is there a way to stretch out
the taxes owed when you con- vert? You can manage the tax you
owe by spreading out the amount you convert over multiple years. Onestrategy is to convert only the amount that won’t push you into another tax bracket. If you plan right, you could convert just enough to bump yourself to the top of your current tax bracket, thereby minimizing the tax cost of converting,McDermott said. Whenare taxesdueonaRoth
conversion? They are due for the tax year in
which you make the conversion. For example, if you do a conver- sion in 2010, the taxes are due by next April 15.
Is it alwaysworth it to convert
your traditional IRA to a Roth? Talk to some people and they
think it’s a no-brainer. It’s not. There’s much to consider. Don’t let the fear of a future tax burden push you into a Roth conversion. You need to consider a lot of options. Here’s where you can find an online tool to help: fideli-
ty.com/rothevaluator. Sowhat did I tell you?Madden-
ing. Nuances. But nonetheless, you have to weigh through it all to be sure you’re saving as much as you can for retirement.
Readers can write to Michelle Singletary c/o TheWashington Post, 1150 15th St.,NW,Washington, D.C. 20071. Her e-mail address is
singletarym@washpost.com. Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.
A21
For investors, this has been an unexpectedly kind September Stocks on hot streak,
with S&P up 7.2 percent since month began
BY JIA LYNN YANG Defying September’s track re-
cord of being unkind to investors, the stock market has shot up for the past two weeks as investors have grownless fearful the econo- my will slip into another reces- sion. Stockshavebeenintheredonly
two days this month so far, while the Standard & Poor’s 500-stock index has risen 7.2 percent since the beginning of themonth. After a swelteringAugustwhen
stocks plunged,Wall Street seems to be feeling a little less bearish. During the summer, econo-
mistsweren’t surewhat theywere seeing: a precursor to another re- cession or something less mild,
such as a temporary break in a slowrecovery. But a recent stream of figures
about jobs, manufacturing and retail has been a little better than many analysts expected, and some of that optimism is seeping into investors’ psyches. “Everyone thought the world
was coming to an end,” said Phil Orlando, chief equity strategist at Federated Investors. “What’s dif- ferent is suddenly the numbers started to get better instead of worse.” None of the data have wowed
anyone. But coming into this lat- est rally, analysts said stock prices already reflected investors’ worst fears. As a result, any news that’s not terrible has been enough to nudge stocks up. “Those [double-dip recession]
fears are beginning to dissipate,” said Peter Cardillo, chief market economist atAvalon Partners. Wednesday brought yet anoth-
Gauging the stock market Te S&P 500 has risen 7.2 percent since the beginning of September, traditionally a weak month for the market.
Standard & Poor’s 500-stock index Daily closes from Sept. 6, 2009, to Wednesday
950 1000 1050 1100 1150 1200 1250
Wednesday’s close: 1125.07
“We’re still grinding our way through.”
—Peter Sorrentino, Huntington Asset Advisors
ing to spend a little more. On Tuesday, the Commerce Depart- ment reported that sales in Au- gust saw their biggest rise in five months. Purchases were up 0.4 percent fromJuly toAugust, beat- ing expectations. There’s even been decent news
O 2009 SOURCE: Bloomberg News
er bit ofmodestly good news. The Federal Reserve reported that productionatU.S. factoriestipped
N D J 2010 THE WASHINGTON POST
up 0.2 percent inAugust, growing for the 12th time in 14months. Consumersalsoseemtobewill-
F M A M J J A S
coming out of themanufacturing sector. This month, the Institute for SupplyManagement reported that its factory purchasing man- agers’ index jumped to 56.3 in August, beating expectations. The latestmarket rallybeganat
the end of August, around when the Commerce Department said the country’s gross domestic
product grew 1.6 percent in the second quarter of 2010. It also reported that consumer spending hadrisenslightlyfor fourquarters in a row. Still, analysts aren’t sure whether this rally has legs. The high unemployment rate seems stuck at just under 10 percent. “There’s a lot of churning, just
not a lot of conviction,” said Peter Sorrentino of Huntington Asset Advisors. On Wednesday, the S&P 500,
the broadest measure of stocks, rose to 1125, or 0.35 percent, a five-week high. That’s about 10 percent higher than the year’s lowest point so far in July. Meanwhile, the Dow Jones in-
dustrial average rose 0.44 percent and theNasdaq rose 0.5 percent. “We’re still grinding our way
through a bearmarket,” Sorrenti- no said. “We’ve seen the absolute lows. Now we’re trying to get our balance back.”
yangjl@washpost.com
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Daily Stock Market Performance Index
Dow Jones Industrial Average
11,400 10,900 10,400 9900 9400
Nasdaq Composite Index
2600 2400 2200 2000
S&P 500 Index 1220
1170 1120 1070 1020
1125.07 +0.4 +0.9 2301.32 +0.5 +1.4
Daily Close % Chg
10,572.73 +0.4
% Chg +1.4
YTD THEMARKETS
Industry Group Airlines
S&P 500 Industry Group Snapshot Daily
Real Estate Mgmt & Dev Diversified Consumer Svcs Personal Products
Health Care Eqp & Suppl Health Care Technology Electrical Equipment
Energy Equipment & Svcs Building Products
Electrnc Eqp, Instr, Comp
% Chg 2.61 2.27 1.82 1.65 1.65
–0.66 –0.74 –0.79 –0.99 –1.15
International Stock Markets Americas
Close
Brazil (Bovespa) Canada (S&P/TSX Comp.) Mexico (Bolsa) Europe
Eurozone (DJ Stoxx 600) France (CAC 40) Germany (DAX) U.K. (FTSE 100)
Asia Pacific S O N D J
Company 3M
Alcoa
AmExp AT&T BoA
Boeing
Caterpillar Chevron
Close 84.58
11.43
40.85 28.01 13.71 62.73 72.13 79.21
Cisco Systems 21.59 Coca-Cola DuPont
57.42 42.93
Exxon Mobil 61.00 GE
Home Depot 29.94 HP
16.34 39.62
Other Measures Index
Daily % Chg
–0.1 F M A M J
Dow Jones 30 Industrials YTD
% Chg 2.3
–0.5 –29.1 1.2 0.3 0.2 0.0 0.4
0.8
–0.4 0.7
–0.3 0.6
–0.1 0.8
–0.1 –9.0 15.9 26.6 2.9
–9.8 0.7
0.0 –10.5 1.1
–23.1 Close
DJ Total Stock Market Index 11,733.24 Russell 2000
652.51
Post-Bloomberg DC Area Index 192.50 CBOE Volatility (VIX)
22.10
27.5 8.0
3.5 J A S
Company IBM
Intel J&J
JPMorgCh Kraft Foods McDonald's Merck
Microsoft P&G Co Pfizer
Travelers Wal-Mart Walt Disney
Close 129.43
18.72 61.05 40.98 31.59 74.71 36.51 25.12 61.11 17.27 52.49
United Tech 68.27 Verizon
31.19 52.86 34.21
Daily % Chg 0.4 0.5 0.4 2.5
Daily % Chg
0.5
–0.1 0.8 0.6 1.7 1.0 0.0 0.3 0.8 1.1
2.9
–0.7 0.9 0.4 0.5
% Chg –1.1
–8.2 –5.2 –1.7 16.2 19.7 –0.1
–17.6 0.8
–5.0 5.3
–1.6 0.8 –1.1 6.1
YTD % Chg 2.1 4.3 2.7 1.9
YTD
Australia (ASX 200) China (CSI 300) Hong Kong (Hang Seng) Japan (Nikkei)
4661.50 2913.19
21,725.64 9516.56
Cross Currency Rates US $
EU €
US $ per EU € per
Japan ¥ per Britain £ per Brazil R$ per
Canada $ per Mexico $ per
0.7686 85.6900 111.4900
0.6402 0.8330 0.0075 1.7235 1.0264
2.2421 0.0201 1.3352 0.0120
12.7992 16.6522 0.1490
Interest Rates Consumer Rates
Money market funds 6-Month CDs 1-Year CDs 5-Year CDs New car loan Home-equity loan
1.03 0.82 1.10
2.34 5.90 7.23
0.8
–1.7 0.1 2.3
Japan ¥
1.3010 0.0117 0.0090
Britain £ Brazil R$ Canada $ Mexico $
1.5621 0.5804 0.9744 0.0782 1.2006 0.4460 0.7488 0.0601 133.8600 49.7335 83.4800 6.6960 0.3715
2.6914 1.6034 0.5957
68,106.85 12,144.84 33,046.69
265.54 3755.64 6261.87 5555.56
Daily % Chg
0.6
–0.4 0.0
–0.3 –0.5 –0.2 –0.2
YTD % Chg –20%
–3.0% 0 +3.0%
Commodities Futures
Copper Corn
Crude Oil Gold
Natural Gas
Daily Close % Chg
$3.4580 $4.9525 $76.02
0.0
+0.1 –1.0
$1267.10 –0.2 $4.00
+0.7
Value of $1000 invested for the past: Exchange-Traded (Ticker)
Daily % Chg
0% +20%
Coffee (COFF.L) Copper (COPA.L) Corn (CORN.L) Cotton (COTN.L) Crude Oil (CRUD.L) Gasoline (UGAS.L) Gold (BULL.L)
Natural Gas (NGAS.L) Silver (SLVR.L)
–0.5 –0.5 1.4 0.0
–2.2 –1.8 –0.2 1.8 0.7
Gainers and Losers from the S&P 1500 Index Gainers
Daily Close % Chg
Savient Pharm
Neutral Tandem Inc Tetra Technologies LifePoint Hospitals LCA-Vision
Novatel Wireless DG FastChannel Inc Seahawk Drilling Pall Corp
Amedisys Inc
0.6237 0.0500 1.6785 0.1347 0.0802
19.9872 7.4260 12.4674
Liz Claiborne RC2 Corp McKesson
Covance Inc Mastercard Masimo Corp
0.29% 0.25% 3.25%
Bank Prime Federal Funds LIBOR 3-Month
3.64% 3.88% 4.50%
10-year note Yield:
30-Year fixed mortgage 15-Year fixed mortgage 1-Year ARM
5-year note Yield:
2.72 1.44
4:30 p.m. New York time.
$19.98 35.4 $12.22 17.2 $10.36 13.6 $36.69 10.6 $4.98 9.9
SuperiorEnergySvcs $26.51 9.6 The Knot Inc
$8.15 8.5 $7.05 8.0 $17.92 7.9 $8.06 6.6 $40.41 $26.01
6.3 6.2
HornbckOffshoreSvcs $16.77 6.0 Novell
$5.90 5.9 $5.38 5.7 $20.06 5.7 $62.98 5.4 $41.56 5.4 $210.18 5.2 $28.10 5.1
Losers
AK Steel Holding Time Warner Cable Micron Technology Holly Corp
AM Castle & Co Tollgrade Comm UIL Holdings
Brooks Automation St Mary Land
TrueReligionApparel Standard Pacific
Orange Juice Silver
Soybeans Sugar Wheat
$800
Data and graphics by Q: day
Daily Close % Chg
$1.4810 $20.54
$10.4250 $0.2382 $7.2675
$1000 Q:
If the Democratic De
Clinton Obama Edwards
+1.1 +0.7 +0.7 –2.2 –1.3
month $1200
Question goes here goes here. Question
Daily Close % Chg
$13.70 –5.7 $52.43 –5.0 $6.94 –4.5 $28.05 –4.5 $13.30 –4.5 $7.05 –4.3 $25.89 –4.0 $5.70 –3.7 $36.98 –3.7 $19.61 –3.5 $3.87 –3.5
UnitedCommunityBank $2.56 –3.4 GraniteConstruction $23.99 –3.2 American Vanguard Blyth
Lufkin Industries
$6.97 –3.2 $39.20 –3.2 $42.01 –3.1
Advanced Energy Ind $14.43 –3.1 CommVault Systems $26.19 –3.1 Corrections Corp Affymetrix
$22.50 –3.1 $4.87 –3.0
Treasury Performance Over Past Three Months
2-year note Yield:
6-month bill Yield:
0.48 0.19
Note: Bank prime is from 10 major banks. Federal Funds rate is the market rate, which can vary from the federal target rate. LIBOR is the London Interbank Offered Rate. Consumer rates are from Bankrate. All figures as of
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