End of Year Opportunities

It is time for practical “how to” advice. Here are a few ideas that you might consider implementing before the end of 2008.

Roth IRA Conversions:
Last January, we described tax law changes that expanded the opportunities for Roth IRA Conversions. This year’s market upheavals have created an additional reason some individuals may want to consider converting this year.

IRA conversions move money from traditional IRA balances to Roth IRAs. Because traditional IRAs hold tax-deferred money, while Roth IRAs accept only after-tax contributions, income taxes must be paid on the amount removed from the traditional IRA when completing a conversion. In this year’s bear market, many IRAs have experienced losses. Unfortunately, market losses in traditional IRAs do not translate into capital losses on income tax returns. However, moving money to a Roth IRA actually saves on future taxes. This is because the recovery of losses, through future asset appreciation, avoids taxation altogether, if certain qualifications are met. If you don’t convert, any future appreciation/loss recovery in your traditional IRA will be taxed as ordinary income when distributed. Sounds great, but you still have to be willing to report the amount converted as ordinary income in 2008.

So how do you complete a Roth conversion?

Talk to your StrategicPoint advisor about whether a conversion makes sense
Talk to your CPA to ensure conversion eligibility -- your modified adjusted gross income cannot exceed $100,000 for 2008 -- and about how much to convert.
If you do not have a Roth account, open one.
Ensure that you have enough money to pay the tax due for a conversion. A Roth conversion makes the most sense if an individual does not need to use the conversion money to pay for taxes.
Don’t delay. Conversions apply only in the year they are made. You can’t convert next February and have the conversion apply to 2008. In addition, the conversion is effective when the money leaves the traditional IRA, not when the request is made. So don’t wait until the last minute; we need to hear from you in November to ensure this is done in a timely manner.

Other Opportunities and Reminders
Lawmakers attached a tax bill to the TARP (rescue) Plan -- Highlights include:

Reinstatement and increase in the Alternative Minimum Tax exclusion for 2008.
Extension, through 2009, of the state sales tax, college tuitions and teachers’ supplies deductions, along with the new standard deduction for property taxes.
Extension of the Qualified Charitable Distribution. The QCD allows an individual, who is 70 ½ or older, to directly rollover a portion of an IRA (up to $100,000) to a charitable organization. Although the donor does not receive a charitable deduction on their income tax return for the gift, the donor does not have to report the gift as income. Gifts, which count towards your Required Minimum Distribution, must be made directly from the IRA to the charity to qualify.

StrategicPoint Working With You
If you missed it, September’s Wealth Management Newsletter, focused on tax law changes regarding investment properties and second homes. Click here to read it.
As always, please feel free to call us if you would like to discuss any issues presented in this newsletter.