A Gift in 2010 from the Federal Government

I am almost certain that when you read the title of this weeks blog, you chuckled to yourself because the concept of a gift from the federal government is almost unfathomable. If you are a cynic, like I am, you probably rolled your eyes and huffed under your breath “yea right” and said “what’s the catch?” Maybe the word “gift” is too benevolent and I should change it to “opportunity”. Either way, I want to draw your attention to the financial benefit you may reap by taking advantage of the upcoming opportunity to convert your traditional IRA into a Roth IRA.

As you are probably aware the traditional IRA is built through pre-tax contributions with the tax liability being postponed until retirement and paid upon distribution. Basically, the taxes are paid on the amount of contribution and the amount earned when funds are dispersed during retirement. The Roth IRA, on the other hand, is built using post-tax contributions. The tax liability associated with the contribution to the Roth IRA is paid at the time the money is earned, however, the accrual generated, whether $100 or $1,000,000 is never taxed. One of the downsides to the Roth IRA has been the income restriction which has prohibited many from being able to add this option to their retirement portfolio. Those restrictions have been, $120,000 AGI filing single or $176,000 AGI for married fling joint.

Here’s the gift. In 2010 the federal government is removing the income restriction for a Roth IRA conversion and are allowing two years to pay the associated tax liability. For those who have IRA’s not in the Roth designation this is a tremendous opportunity to accrue investment results and never pay taxes on the accrual. A tax liability is associated with this conversion however, there are two options for payment. Option one, pay 100% of the taxes in 2010 or option two, pay 50% of the taxes in 2011 and 50% in 2012. The only other caveat is you should be able to pay the taxes from a source outside the IRA.

After the taxes are paid on the conversion, you will never pay another dime from that fund to the IRS. We at Garrow Equity Group are excited about the possible returns that our funds are going to generate for our investors. That excitement is amplified as we consider the bonus to our investors if the investment is via a Roth IRA.

As you consider adding this to your retirement portfolio I encourage you to consult your tax professional and or CPA as to your personal situation. If you are a client of Garrow Equity Group via your IRA and wish to make the conversion to a Roth IRA, please contact Alan Ford and he will assist you in that process.

We at Garrow Equity Group, a Private Equity Firm located in Clark County, Washington, are pleased to provide our investors with the opportunity to self-direct IRA’s and Roth IRA’s, via Pensco Trust Company. Alan Ford, our resident expert in this area, has attended several seminars and has developed a strong relationship with Pensco Trust representatives. If you have any questions about Garrow Equity Group, please contact Alan at alan@garrowequity.com