Money With Mark
A View Askew
Financial

Advice and Commentary
Wit and a Little Wisdom
by Mark Snyder, ChFC
By Joe Neuschatz
To Convert to a Roth IRA or Not? Saint Valentine’s Day
That’s the Question this Year for Investors A Few Unsolicited and Totally Inexpert Advices on Love
For 2010 only, nearly anyone with a traditional Individual Retirement Account
Valentine’s Day is coming. Millions of love notes and cards with hearts and
(IRA) will be able to convert it into a Roth IRA. Thanks to the Tax Increase Preven-
Cupid designs will be sent, gifts will be given and, just like in the previous years,
tion and Reconciliation Act (TIPRA), virtually all investors, regardless of their filing
the same question will come to my mind: why?
status or how much they earn, will have access to this retirement and tax-planning
I hate to appear stupid but please teach me: what is the big deal about this
opportunity.
February the 14th date? As far as I remember from my history of humanity stud-
For many, however, the conversion debate is creating more questions than an-
ies, nothing exactly romantic happened on such a day.
swers as retiring minds want to know: is this a smart move for me? There is no simple
I am aware that falling in love is often equated with losing your head. Could
answer. Frequently, one large obstacle to making this decision is taxes. To put the
this be due to the fact that February 14th was the day when Saint Valentine, a
“Roth conversion” debate into the simplest terms possible look at it this way: would
kind-hearted Roman priest, was beheaded on the order of Emperor Claudius II? I
you prefer to pay your taxes now (and possibly some penalties as well) or would you
begin to believe that such explanation is possible, very possible. But please don’t
rather pay them later when you may be in a lower bracket?
be surprised that I also believe that the anatomical separation of Valentine’s head
As of Jan. 1, 2010, the income restrictions that had prevented Roth IRA conver-
from his body was not exactly a demonstration of imperial love.
sions by taxpayers with adjusted gross incomes (AGI) above $100,000, or by married
I was also taught, during my early years, that exactly 80 years ago, on February
individuals filing separately, were lifted. A radical departure from previous years when
specific requirements had to be met in order to have a Roth IRA conversion with the
14th 1929, the once famous Al Capone, (with some help from his friendly gang and
blessing of the IRS, it is being seen as a timely opportunity to move money into a Roth
their machine guns), got rid of a few unwanted organized crime competitors, in a
IRA and have tax-free retirement withdrawals for some high earners. Before rushing
Chicago warehouse. The event is remembered as the Valentine’s Day Massacre.
to the conversion altar, do some financial soul searching.
Was the mass murder triggered by love? Of course not! If you would really like to
Roth IRAs and traditional IRAs each have their advantages. That does not necessarily
know my humble opinion, Valentine’s Day is a holiday invented by local florists,
mean each of us should start converting our traditional IRAs into a Roth. This is a
gift shops, pastry makers and jewelers. Sorry for being such a spoilsport!
decision that’s worthy of consideration as it can have serious repercussions on your
The 51% divorce rate in our country proves that many American people
future finances.
marry for the wrong reason. What kind of a wrong reason? Let me tell you: I am
IRAs frequently make sense for long-term retirement-savings. If you have
convinced that the culprit is none other than a commonly used four letters word:
started saving in another retirement account, converting to a Roth IRA may help you
LOVE. I never understood why, the people who are already floating amorously
minimize future taxes and maximize your retirement savings. As our office does not
on cloud nine, are so eager to tie the knot. Hoping to climb from cloud nine to
give tax advice, the decision to convert needs to be made with care and should include
cloud ten? I wish such a thing was possible.
a consultation with your tax and financial advisors.
Here is some classic common knowledge: a person in love and flying high
The Case Against Roth Conversions
is too adoringly lightheaded to remember the good old maxim: what goes up must
When it comes to money and taxes, nothing should ever be taken for granted. come down. My compatriots don’t seem to be aware that starting a relationship
While we’ve said a Roth conversion is not for everyone, in the end, it may prove to with both feet on the ground (from the day they say “I do”), is a safer proposi-
be for very few of us, here’s why: tion. It gives their conjugal bond a better chance to grow, to go up. When your
Upon retirement, do you expect to be in a higher or lower tax bracket? This is a key relationship starts from the bottom, going lower than that is hardly feasible. The
question because if you expect to be in a lower tax bracket at retirement the tradi- only two other possibilities are (1) remaining on the same level or (2) going up.
tional IRA may be the way to go. This is the prevailing IRA wisdom still holds true I sincerely believe that the 49% of people (despised by divorce lawyers) who
for many pre-retirees, if you’ve already got a traditional IRA there may be no good remain married, despite the odds against them, remain married because they fol-
reason to change. The Roth IRA is appealing for those expecting to be in a higher tax
low the old enlightening proverb: a happy man marries the woman he loves; a
bracket during retirement. For the Roth conversion to be helpful retirement income
happier man loves the woman he marries.
will need to be high.
In our days, if you would like to be sure that you are building a strong lov-
The IRA vs. the IRS
ing relationship and not a temporary chat-room infatuation, all you need is time.
Historically, one of the main attractions of IRA investing has been tax minimiza-
We must all remember that the passing of time represents for love, what the wind
tion. Individuals need to examine each end of this equation to maximize their returns
represents for flames: small flames are quickly blown out. Big flames become
and minimize tax liability. While converting to a Roth IRA can enable you to utilize
three alarm fires.
some potential tax-free growth and withdrawals without minimum required distribu-
It is also very important to keep in mind that a man doesn’t love a woman
tions in retirement there is a cost for this privilege – namely paying taxes today.
because she’s beautiful; a woman is beautiful because a man loves her. I wish
Consider that when converting your traditional IRA to a Roth, taxes will be due
I could remember who wrote all those romantic but realistic phrases. The only
on your previously deducted contributions, as well as on account earnings. Your future
author I can recall is Marguerite Duras, a famous 20th century French writer. Her
tax break is being paid for today. In a worse-case scenario, this could actually drive
view about men and love was simple and unique. She is the one who wrote: “you
you into a higher tax bracket, not a far-fetched idea if you’ve accumulated respectable
have to be very fond of men. Very, very fond. You have to be very fond of them
earnings in your IRA.
to love them. Otherwise they are simply unbearable.”
While only the part of your income that pushes you into that new bracket will be taxed
I was frequently told that love of money is often more reliable than romantic
at the higher rate, it’s still an extra expense you’ll have to pay plus there will be more
calculations for your accountant. They will probably need to run hypothetical scenarios
love. This is probably true. If you marry a rich person, chances are you will remain
to see which makes the most sense. The first step for getting a rough estimate of your
married for as long as the person remains rich. But somehow, I think that it is still
potential tax bill is to calculate your “cost basis.” This is a combination of any after-tax
better to start with very little and build a prosperous life together, hand in hand.
IRA contributions plus the total balance in each of your IRAs.
And now, speaking of hand in hand: if you happen to meet me on Main
For those dead set on converting and who acknowledge that they will have taxes
Street or in a shopping center holding my wife’s hand, please don’t assume that I
due, it may be wise to put money aside now. Some IRA holders use money from a
am doing that to prevent her from buying stuff. This is absolutely not true. I just
retirement account to pay this bill. This is usually never advisable as it reduces your
happen to be an old, incurable romantic!
retirement savings. Plan to make such payments from an outside source that is not a
Thank you for reading above advices. You have my permission to forward
retirement account. Further, IRA account holders younger than 59½ will also pay a
them (while respecting –of course- my copyrighted authorship) to friends, ac-
10% early-distribution penalty for what the IRS views as an early withdrawal.
quaintances, or to whomever you may prefer but please make sure that you don’t
In any event, speak with your tax advisor before going ahead with any IRA conversion.
let Dr. Phil find out that I am invading his territory.
Because, in the end, the money you save, should be your own.
Before I finish, let me ask a question: do you know why Adam and Eve
were the happiest couple in history? Because she never presented him with a list
Mark J. Snyder, ChFC, is an independent financial adviser in Medford. For a
of the men she could have married and he never compared her cooking to his
free, no-obligation of his newsletter, The Snyder Report, please call his office: mother’s.
631-289-4224. A HAPPY VALENTINE’S DAY TO ALL OUR READERS!

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