Conversion of a Traditional IRA to a Roth IRA by ujp66840


									                                     Winter 2010

A Message from the CEO
Gordon B. Fowler, Jr., President and Chief Investment Officer                          Strategic Hires

             A key and formative          advantage of its sound capital position     Howard E. N. Wilson,
             experience for my            to invest in opportunistic endeavors        Executive Vice President and
             parents, and many in their   and expand our geographic footprint.        Director of Client Services
             generation, was the Great                                                            The strength of
             Depression. These were       Investing at an Opportune Time
             difficult times, and very     As we move forward, increasingly                        independence
few individuals or families escaped       we find there is a growing interest                     continues to distinguish
unscathed. But, surprisingly, some        from prospective clients and talented                   our firm and enables us
                                          professionals who want to be part                       to recruit exceptionally
people will actually recount how
                                          of our company. This trend further                      talented professionals:
their family experienced a “good
Depression.” By this, they mean that      validates our commitment to remain          • Jason Pride, CFA, joined Glenmede
while times were tough, and despite       independent and solely focused on             as Director of Investment Strategy,
the belt-tightening, family members       investment and wealth management.             a newly created position. Jason
                                                                                        will be responsible for formulating
came through the period stronger,
                                          While other firms reduced their               and, along with Chief Investment
more united, and with a greater sense                                                   Officer Gordon Fowler, directing
                                          workforce, we took the opportunity
of confidence and purpose.                                                               investment policy and strategy for
                                          to tap into the availability of
                                                                                        Glenmede clients.
I feel, with a certain amount of          key investment and relationship
                                          professionals who share our values          • With the establishment of our
pride, that the same can be said of                                                     New York office, we are pleased
Glenmede over this last year. The         and were attracted to our collaborative
                                                                                        to welcome Lee Miller as a
volatility in the markets that started    culture. Our most noteworthy                  Senior Trust Administrator and
in 2008 and continued into 2009 was       initiative, which continues our               Glenn Switzer as a Senior Portfolio
an intense challenge for our clients.     organic growth strategy, came with            Manager. Together, they represent
                                          the opening of a new, full-service            an average of more than 30 years
Many wealth management companies                                                        of expertise, and both will serve
were forced to retreat from business      office in New York.
                                                                                        as primary contacts as we further
pursuits while also resorting to severe   Although the barriers to entry of             develop a presence in the
cost-cutting tactics.                                                                   New York City metropolitan region.
                                          this marketplace are formidable,
                                          Glenmede’s strength and stability           • William (Bill) Robb joined
Unlike these firms, we walked                                                           Glenmede’s Morristown office
into this period better prepared          offer a compelling value proposition
                                                                                        as a Portfolio Manager with over
to withstand the headwinds of a           to a population stricken by changing          11 years of experience providing
collapsing market and faltering           market dynamics. Against this                 investment counsel and wealth-
economy. By diligently assessing          backdrop, Glenmede stands out as              advisory services to high-net-worth
                                          an attractive alternative for current         individual and institutional clients.
and streamlining our operational
expenditures, Glenmede avoided mass       and prospective clients who have an
                                                                                      We believe this momentum will
employee layoffs and other maneuvers      increased interest in fostering a more      continue, and Glenmede is prepared
that would have compromised the           intimate, trusting relationship with        to opportunistically hire skilled
integrity of our culture and how          their wealth advisor.                       individuals who share our priority to
                                                                                      serve clients from a platform that
we conduct our business. We chose
                                                                                      focuses exclusively on investment
instead to carefully control our                                                      and wealth management.
expenses. As a result, Glenmede took      continues on page 2

                                                                                    Glenmede Perspectives Winter 2010     1
“A Message from the CEO” continued from page 1

As the number of independent             with a narrower recovery gap when          2. Simplify the financial world of our
wealth management firms big              the market rose during the later part         clients. Provide clients with a level
enough to provide broad and              of last year.                                 of financial advice and service that
sophisticated advice shrinks, we have                                                  improves the quality of their lives.
the opportunity to make inroads          The Next Phase of
                                         Glenmede’s Growth                          3. Sustain our independence.
and not only establish a complete
                                         2009 was a time of transition for             Maintain financial strength
regional footprint from New York to
                                         Glenmede. After 35 years of service,          through periods of economic
Washington, but also reinforce our
                                         Al Piscopo retired as Glenmede’s CEO.         stability and turmoil so that
growing national presence.
                                         My colleagues and I are indebted to him.      Glenmede remains a reliable,
A Year of Considerable Activity          Under Al’s stewardship, Glenmede              independent organization focused
with Clients                             made the necessary investments and            on the needs of current and future
An important effort during this          ensured the stability of our foundation       generations of clients.
volatile year was our intense campaign   while preserving our long-term
to reach out to our clients to ensure    commitments to our clients and             These strategic goals will last beyond
that our best ideas, from investment     employees. He is why we are positioned     2010. They are intended to serve as
strategy to financial planning, were     today to confidently move ahead.           an underlying charter for long-term
shared at a time of great uncertainty.                                              initiatives, and bring us closer to
In turn, client contact levels were      As part of the transition to new           reaching these objectives.
greatly increased during the most        leadership, we engaged our
                                         management team and Board of               Closing Thoughts
stressful months of market declines                                                 I am very excited about Glenmede’s
and instability.                         Directors to develop a new set of
                                         strategic goals for Glenmede. These        future. We have a unique and
Account performance during this          goals represent big-picture concepts       competitive advantage in the
period held true to our mission to       that, if executed successfully, should     investment and wealth management
participate in market growth on the      lead to a richer client experience,        market, and an excellent opportunity
upswing and protect client assets on     profitable growth for shareholders, and    to build from here. If we approach
the downturn. This mindset serves        rewarding careers for our employees.       this opportunity with the same
the best interests of our clients in     They are:                                  values that have guided us in the
varying economic climates. During                                                   past—a commitment to service,
the steepest part of the declines, we    1. Produce superior investment             thoughtful collaboration, a disciplined
earned the greatest level of relative       results. Exceed our clients’            business focus, and a high level of
performance, cushioning our clients’        expectations for investment             integrity—I am quite confident that
investments and leaving portfolios          return and risk management.             we will achieve our intended results.

                                         Spring Cleaning
                                         Time to gather those tax materials and send them off to your tax preparer. And
                                         while you are at it—what can you throw away or shred? Our recommendations:

                                         Keep forever: Copies of tax returns,       canceled checks and receipts for all
                                         records to support nondeductible           tax deductions, including deductions
                                         traditional IRA contributions, and gift    for charity, real estate taxes, tax
                                         tax records.                               preparation, and investment
                                                                                    expenses; and year-end statements
                                         Keep until at least three years after
                                                                                    from investment advisors.
                                         the asset or home is sold: Cost-basis
                                         records for investments, including         Shred: Monthly investment statements
                                         dividend reinvestment plans,               (but keep the year-end statement)
                                         partnership K-1s, and receipts for         and paycheck stubs (if they match
                                         home purchase and major home               the W-2).
                                         improvements.                              Shred: Credit card and utility bills
                                         Keep for 10 years: All 1099 and W-2        unless they relate to tax deductions.
                                         forms; supporting documents, such as

                                                                                    Glenmede Perspectives Winter 2010        2
An Overview of the State of the States
Shifting valuations require active monitoring and a disciplined investment approach
Laura LaRosa, Director of Fixed Income

             States and municipalities    its payments, if this were to occur,
             have long issued debt as a   government administrators would be
             way to fund the programs     forced to act as quickly as possible to
             and initiatives that         remedy the problem.
             enable governments and
             communities to function      State and local municipalities
and thrive. Yet the recent economic       can also improve their financial
recession has hit many governments        conditions through many cost-
exceedingly hard, leaving them short      cutting methods under their control.
of cash and with limited options.         Although unpleasant, libraries and
                                          recreation centers can be closed,
Unfortunately, there is little cushion    trash collection can be reduced to
for budgets facing diminished revenue     once a week, and cutbacks in the
streams and a significant rise in         form of forced employee furloughs
administrative costs. Of particular       can be initiated. These tactics may be
concern, California, Illinois, Nevada,    painful for constituents to bear, but
and New York are struggling under         such measures have been used in past
severe financial pressures. We expect     recessionary times.
that this downward trend will extend
into 2011 and possibly beyond,            For those investors who find
depending on the nature of the            the stream of negative news too
                                          uncomfortable, pre-refunded or               For those investors who
economic rebound. This is especially
                                          escrowed municipal bonds offer               find the stream of negative
important given that, until now,
municipal debt has been viewed as one     the ultimate safety. These bonds,            news too uncomfortable,
of the most trustworthy investments.      which are tax-exempt, are created            pre-refunded or escrowed
The question that remains unanswered      when municipalities issue new debt           municipal bonds offer the
is this: Will governments initiate and    to refinance previous debt issued at         ultimate safety.
then stick with the necessary reforms     higher interest rates. The issuer uses
they need to enact?                       the proceeds from the new bond
                                          issue to purchase U.S. Treasuries
At Glenmede, we continue to invest        as collateral. The U.S. Treasury          receive noticeably more media
in states with healthy cash flows and     collateral is then used to pay interest   coverage. Nevertheless, we believe
ample capital reserves. The most          and principal on the bonds when           that municipal securities remain an
powerful financial tool available to      due. A pre-refunded bond therefore        appropriate and important investment
states and municipalities is their        provides an investor with a tax-          for our clients to consider, provided
ability to raise taxes. Municipal         exempt municipal bond backed by           that such investments are made using
General Obligation debt, a secure form    U.S. Treasuries.                          a disciplined investment approach and
of debt issuance, enables a state to                                                thoughtful due diligence. Glenmede
raise funds while providing investors     It remains to be seen how and when        continues to navigate the changing
with the municipality’s full-faith-       certain states will emerge from           landscape and identify opportunities,
and-credit guarantee to pay interest      their current crisis. The housing         and we will keep you, our clients and
and principal at maturity. For the        market collapse along with high           colleagues, informed.
majority of states that remain above      unemployment rates could take
the fray, these bonds continue to be      many years to correct. We expect
a viable source of funds. While it is     further deterioration of state and
rare for a municipality to default on     municipal financial conditions to

                                                                                     Glenmede Perspectives Winter 2010   3
                         Conversion of a Traditional IRA to a Roth IRA:
                         A Good Opportunity for Some, All, or Nobody?
                         Melissa L. Burke, Director of Personal Income Tax
                         Charles M. Aulino, Director of Financial Planning

Beginning in 2010, owners of traditional      Studies suggest that conversions               operating losses that offset taxable
IRAs (Individual Retirement Accounts)         (and payment of related income                 income caused by the conversion.
have the right to convert to a Roth IRA       tax) are most efficient when                   Similarly, owners may have
regardless of income. Conversions may         the funds remain intact for a                  Alternative Minimum Tax (AMT)
occur in any year in the foreseeable          long period. This means that                   credits available for use if the
future, but there is a potential tax          conversion is beneficial primarily             conversion income pushes them
advantage to making the conversion            to young owners (under age 40)                 out of AMT.
in 2010. Owners must pay income tax           or those who intend to pass IRAs
on the value of the traditional IRA at        intact to heirs.                           5. What is the future of income tax
the time of the conversion, but income                                                      rates? Future tax rates affect the
taxes payable on 2010 conversions          2. Will the IRA owner pay the                    decision of whether to convert
may be deferred over two years (2011          income tax on the conversion from             all now or in pieces over time.
and 2012). Conversion by a beneficiary         financial resources other than the            For example, if in the future the
of an inherited IRA is not permitted.         IRA itself? If the income tax is paid         government changes policy and
                                              from the converted IRA, much or               decides to subject Roth IRAs to
Traditional IRAs and Roth IRAs                all of the long-term advantage of             income tax, then, despite all the
differ in three fundamental ways.             conversion may be lost.                       planning, will conversion have
First, withdrawals from traditional                                                         been a detriment?
IRAs are subject to income tax,            3. Will the beneficiaries of the
while withdrawals from Roth IRAs              converted IRA be individuals or            For older IRA owners, the decision to
are not. Second, traditional IRAs are         charities, and how soon will they          convert a traditional IRA ultimately
usually funded with tax-deductible            need to use the funds? Conversion          comes down to an analysis of long-
contributions, while Roth IRAs are            of a traditional IRA to a Roth IRA         term financial security. Will you
funded with after-tax dollars. Third,         seems unwise when a charity is             need to rely on these funds for living
traditional IRA owners must make              the designated beneficiary because         expenses? Glenmede’s financial
annual minimum withdrawals after              charities pay no income tax on             planners can help clients parse this
age 70, while Roth IRA owners need            a traditional IRA. Alternatively,          decision-making process. For younger
not do so during their lifetimes.             if the heirs draw down the funds           IRA owners, a careful analysis of the
                                              soon after the owner’s death, will         time required to recoup the income
Variables to Consider Before                  the amount of time that has passed         tax is an important factor.
Converting a Traditional IRA                  be sufficient to recoup the income
The decision to convert a traditional         taxes previously paid?                     For a more complete analysis of this topic,
IRA into a Roth IRA is complex and                                                       visit your Glenmede WebView account for
not determined solely by reference to      4. Are there any specific attributes in       our white paper on this subject or contact
income tax rates or dollar amounts.           the IRA owner’s tax profile that           your Glenmede Relationship Manager.
Some questions to consider include:           might create an advantage to
                                              conversion? Although the
1. Can IRA owners foretell, with              conversion creates taxable income,
   reasonable confidence, that                owners may have excess charitable
   they will never need to draw on            contribution carryovers or net
   the IRA as a financial resource?

             Philadelphia    •   Cleveland    •   Morristown    •   New York       •   Princeton    •    Wilmington                                  Please email your questions or comments to

                                                                                          Glenmede Perspectives Winter 2010            4

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