Temecula Financial Planner Unveils Roth IRA Strategy for High Income Earners

On May 17, 2006, the Tax Increase Prevention and Reconciliation Act (TIPRA) was passed into law by the President. One of the facets of this new law, which did not come into fulll effect until January 1, 2010, made it possible for high income earners (persons with a Modified Adjusted Goss Income over $100,000) to convert their traditional IRA's into Roth IRA's. The importance of this provision? It affords high income earners the advantage of the tax free growth of a Roth IRA. Although this sector of the population is able to convert an existing retirement account to a Roth program, they would still not be able to contribute to the Roth.

Until now…

One caveat of the conversion process provides a stipulation allowing high income earners over the age of fifty the opportunity to convert up to $6,000 per year from traditional to Roth IRA products ($5,000 annually for those below the age of 50). In other words, a yearly contribution can initially be made to the traditional fund and then switched over to the Roth.

Why is this advantageous?

It is apparent that not only our economy, but also federal programs such as Social Security, Medicare, and Medicaid are in serious danger. Regardless of the political "spin" that is put on bailouts and relief efforts, most experts feel that the nation is headed for tax increases as opposed to tax cuts. If you believe this to be the case, the wise move is to find retirement and investment strategies that limit your tax liabilities. A Roth IRA is one such tactic, providing tax-free accrual and simplified savings. In your traditional IRA, you are not taxed on your investment (depending on your income) but then taxed on the earnings when you withdraw. Conversely, initial Roth contributions are taxable as income, but earnings are accumulated tax free. Assuming that we are headed for a future of higher taxation, eliminating taxes on the back end (withdrawl) has the potential to save you thousands of dollars. Unfortunately, this choice was never before available to those earning over $100,000. Right now, however, the window of opportunity is open for all to grasp.

The key with this, or any financial planning strategy, is to work with an informed professional who has a firm grasp on the ever changing rules of income taxes as they relate to retirement savings. Finding intelligent ways of helping you keep and grow your money is the primary function of a financial advisor and active portfolio management. Investigate your options, ask questions, and then voyage down that road which is best suited for you and your family.


Learn more about active portfolio management and its benefits by contacting John Dubots, Temecula retirement advisor, with Dubots Capital Management. Dubots has over two decades in the industry and will provide a free consultation to answer all of your portfolio management questions.