Jim Lange in Kiplinger’s

Posted on September 4, 2009 by James Lange

Roth IRAs and Roth IRA conversions have been Jim Lange’s passion for the past decade and Jim is always happy to spread the word to the media. Jim’s latest appearance in print can be found in this month’s (September 2009) Kiplinger’s Retirement Report (Leave Your Kids a Tax-free Legacy on page 18).

To show the wealth-building potential of a Roth IRA conversion, Jim gives an example involving two 65-year old fathers. They are both in the 28% tax bracket and both have IRAs valued at $100,000. To simplify the example, both dads also have $28,000 in a taxable account.

The first dad decides to make a Roth IRA conversion and pays $28,000 in taxes up front. The second dad decides to stick to his traditional IRA and will pay taxes upon withdrawal. In Jim’s example, both dads live another 20 years and leave their IRAs to their children.

Thirty years after their parents die, the Roth IRA child has $1.8 million in future dollars. The traditional IRA child only has $980,000. Why the big difference? For starters, the Roth parent never had to take required minimum distributions and the entire amount was able to grow tax-free for all of those years. The traditional dad had to take an RMD starting at age 70 1/2 resulting in the parent and child paying taxes on the RMD every year.

This analysis really becomes powerful when you realize that a tax-law change starting on January 1, 2010 will make all taxpayers eligible for a Roth IRA conversion, regardless of income. Considering that many wealthy taxpayers will be able to convert much more than the $100,000 in the example, the potential benefits of a Roth IRA conversion could be even more dramatic.

In the same Kiplinger’s article, Jim also stresses the importance of the beneficiary designation of your IRA. If you hope to have your heirs stretch this tax-free shalter for their lifetimes, it’s important to get the wording correct. Non-spouse heirs cannot roll an inherited IRA into their own Roth IRA. Instead, they must set up an inherited IRA and the name of the deceased must remain on the account. Jim advises using language along the order of “inherited IRA of Joe Sr. for the benefit of Joe Jr.”. The money must then be transferred directly into the new IRA.

Remember – we are less than four months away from the big tax-law change. Make sure that you’re up-to-speed on the benefits of Roth IRAs and Roth IRA conversions. For a more detailed comparison between traditional IRAs and Roth IRAs, we offer another of Jim’s articles on this website. Go to the homepage, click on articles and then click on Roth: Four Little Letters Lead to Long-term Financial Security.

As always, our excellent professional staff is available to help you with a complete Roth IRA analysis. Get more details by calling our office at 800-387-1129.

New Website Feature

Posted on August 14, 2009 by James Lange

Six months into our new radio show, The Lange Money Hour: Where Smart Money Talks, we’re happy to report that we have loyal listeners from all over the country. Calls, emails and questions have been coming in on a regular basis from California, Michigan, Texas, Ohio, Florida and New Jersey (as well as across Pennsylvania).

We’ve also discovered that many listeners enjoy listening to the shows again once they’ve been posted here at www.retiresecure.com. Thanks to the listeners who made the suggestion that we offer shorter audio clips in addition to our full-length shows.

Since we also thought that was a great idea, we’ve created a new page featuring clips from every show. The link is posted on the left-hand side of the homepage — click on Audio: Key Advice From The Lange Money Hour.

To make this feature even more user friendly, we provide a description of the topic and the date of the show. Now you can get quick advice from Ed Slott, Bob Keebler, Natalie Choate and all of our other guests, just by clicking on the appropriate link.

All of our favorite topics are covered including Roth IRAs and Roth IRA conversions, safe withdrawal rates, the use of insurance in estate planning, tax-loss harvesting and the best estate plan for most traditional families — Lange’s Cascading Beneficiary Plan.

Please use and enjoy these clips at your leisure and keep the ideas coming!

New York Times Analyzes Roth IRAs

Posted on July 24, 2009 by James Lange

The Tuesday, July 21st edition of The New York Times had an article titled “Converting an IRA Into a Roth? How’s Your Crystal Ball?”. Naturally, this got our attention. Jim Lange was at the forefront of the Roth movement when he wrote the first peer-reviewed article on Roth IRAs for The Tax Adviser in 1998. Since then, Roth IRAs and Roth IRA conversions have been Jim’s passion.

For many taxpayers, Roth IRAs have not been on their radar because of the income limitations. Currently, if your household’s adjusted gross income is over $100,000, you don’t qualify for a Roth conversion. However, a big change is about to take place. Starting January 1, 2010, all taxpayers will be eligible for a Roth IRA conversion regardless of income. If you are unfamiliar with Roth IRAs, here’s how they work. With a traditional IRA, you take a tax deduction now and pay income taxes when you withdraw the money. With a Roth IRA, you pay the taxes up front and then your money continues to grow income tax-free for the rest of your life and, perhaps, even the lives of your children and grandchildren.

As we get closer to the tax-law change in 2010, not only is interest in Roth IRAs heating up, but so is speculation that the rules may change down the road. The New York Times article suggests that in the worst case senario, the federal government might try to tax the earnings on a Roth IRA after all. Or, perhaps, the feds might impose a penalty tax on excessive balances. This argument is especially hot right now considering the massive and growing federal budget deficit.

Others believe that Roth IRAs will remain the same, but all other accounts would change to be like them. That means contributions to traditional IRAs would no longer be tax-deductible and pretax savings in 401(k)s and similiar plans would also stop.

Does that mean that you shouldn’t consider a Roth IRA conversion? Not at all. As The New York Times also mentions, many advisors believe that Roth IRAs will not only remain the same, but will become even more valuable if income tax rates increase.

If you’ve ever been to one of Jim Lange’s Roth IRA workshops, he answers the question about a possible tax-law change governing Roth IRAs by pointing out that Roth IRAs are part of The Internal Revenue Code (as opposed to Social Security taxes – which were never part of The Internal Revenue Code). If this law were suddenly changed and taxes imposed at withdrawal, Jim has said in his workshop that this would be “a violation of due process, a violation of the constitution, and you would have a very well-financed revolution”.

Listen to the July 15th edition of The Lange Money Hour which featured one of America’s top IRA experts, Natalie Choate, and you’ll find that Jim and Natalie both agree with two other points made in The New York Times’ article. First of all, if you don’t have the money to pay for the taxes on a Roth IRA conversion outside of your retirement plan, you should probably not convert.

Secondly, it’s not a good idea to do a 100% conversion. As Natalie put it, “don’t put all your money on one horse”. It’s not a good idea to ignore the Roth IRA, and it’s also not a good idea to have all of your money in a Roth IRA. Diversification is key.

Jim Lange and the rest of our team are still very excitied about the possibilities ahead with Roth IRAs and Roth IRA conversions. If you’re wondering what to do, we recommend a professional analysis of your situation. It’s possible that a series of small conversions would work best for you. The professional staff here has been doing thorough Roth IRA projections for years. You don’t have to wait until 2010 to get started – for help, call the office at 800-387-1129.

Our Radio Show Premieres This Week!

Posted on March 22, 2009 by James Lange

We are all very excited about the official premiere of The Lange Money Hour: Where Smart Money Talks, this Wednesday night at 7pm on KQV 1410am in Pittsburgh. This is doubly exciting as we have ‘America’s IRA Expert,’ Ed Slott with us for the whole hour. Although most of the succeeding shows will be live, in order to accommodate Mr. Slott’s schedule, we prerecorded the premiere. Well, with the show now ‘in the can’ we can easily promise that this is an hour that is well worth your time. Jim and Ed are two of the country’s leading retirement planning experts, and this is the first time they have been on the same program together.

The premiere of The Lange Money Hour is Wednesday night at 7pm on KQV 1410am in Pittsburgh and on kqv.com. The show will be repeated the following Sunday, March 29th, at 9am. And if you miss any of these airings, there will be an continuing archive of every show at retiresecure.com.

Happy listening!