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 ROTH IRA 2010 CONVERSION Powered By Docstoc
					                                                                                         2010 Roth IRA opportunity

Effective January 1, 2010, trillions of dollars in traditional IRAs and qualified retirement plans will be eligible for conversion to
Roth IRAs. This unique opportunity creates a significant money-in-motion event for advisors. Those advisors knowledgeable
in Roth IRA conversion rules and strategies will be positioned to build their business substantially by capturing assets, gaining
new clients, and generating referrals. Your Jackson® Wholesalers and the Retirement and Wealth Strategies Group
professionals are here to help you capitalize on this unique opportunity.

2010 Roth IRA Conversion Rules
     •			 rior   to 2010, only taxpayers with an adjusted gross income (AGI) of less           You may have clients who could
       than $100,000 were eligible for a Roth IRA conversion. Beginning in 2010,               benefit from a Roth IRA conversion
       the $100,000 AGI limit is eliminated. This creates an opportunity for all
                                                                                               	 •			 lients   preferring tax-free
       taxpayers to convert their eligible retirement assets to a Roth IRA.
                                                                                                   distributions in an uncertain future
     •			 retax   assets converted to a Roth IRA will be included in the taxpayer’s                tax environment.
       ordinary income in the year in which the conversion takes place. However,
                                                                                               	 •			 lients   with retirement asset losses
       in 2010 the tax liability resulting from a Roth IRA conversion can be spread
                                                                                                   who could take advantage of the
       equally over 2011 and 2012.
                                                                                                   lower tax liability.
     •			        requirement for a completely tax-free distribution from a Roth IRA is
                                                                                               	 •			 lients   with tax losses or credits
       the satisfaction of a five-year holding period. Conversions to a Roth IRA
                                                                                                   that could offset the Roth IRA
       have a separate five-year holding period for qualified distributions.
                                                                                                   conversion tax liability.

Roth IRA Conversion Considerations                                                                  C
                                                                                               	 •			 lients   intending to pass retirement
Clients should consult with their tax advisor when determining whether a Roth                      assets on to their beneficiaries.
IRA conversion makes sense for their individual situation based on their specific              	 •			 lients
                                                                                                    C          looking to reduce the size of
financial and estate planning objectives. Several factors to consider include:
                                                                                                   their taxable estate.
     •			     client’s current and future anticipated tax bracket.                             	 •			 lients
                                                                                                    C          planning to fund trusts with
     •			          tax rates and the impact on distributions of retirement assets.                 IRA assets.

     •			     time frame between the Roth IRA conversion and the need for                           C
                                                                                               	 •			 lients   with assets in qualified
       retirement income.                                                                          retirement plans such as 401(k)s.

     •			     availability of assets outside the IRA or qualified plan to pay the
       tax liability on the conversion.

     •			     desire to pass assets tax-free to beneficiaries.

    Not FDIC/NCUA insured • May lose value • Not bank/CU guaranteed
            • Not a deposit • Not insured by any federal agency

For representative use only. Not for public distribution.
Paying Taxes: Now or Later
While we all know what tax rates are today, none of us              higher taxes on distributions of retirement assets in the
know with certainty what tax rates will be in the future.           future, a Roth IRA conversion at the current tax rates may
When considering a Roth IRA conversion for future                   be advantageous. Even for clients who believe tax rates may
retirement income, a discussion regarding current and               remain constant, they should consider the “tax drag” on
future tax rates will be a primary consideration.                   non-qualified assets and the long-term benefits a Roth IRA
                                                                    conversion may provide when paying the tax liability on a
    •			   clients who expect their tax rate to go up in
                                                                    Roth IRA conversion with non-qualified assets.
      retirement, a Roth IRA conversion offers them the
      opportunity to pay taxes on their retirement assets
                                                                    2. Reduced Asset Values May Provide a Tax Break
      at today’s tax rates so qualified distributions can be
                                                                    When Converting
      taken tax free in retirement.
                                                                    If there is a silver lining from the market losses many suffered
    •			   clients who expect their tax rate to go down in          in the recent market downturn, it could be the lower tax bill
      retirement. A Roth IRA conversion may not make                resulting from a Roth IRA conversion. The amount of the
      sense, as they may pay higher taxes now at the time of        conversion is included in ordinary income, but many clients
      conversion than if they take taxable distributions from a     experienced losses to their retirement accounts in 2008. As a
      traditional IRA or qualified retirement plan in the future.   result, now may be the perfect time to convert to a Roth IRA.
    •			  individuals who expect to remain in the same tax          For example, a client’s IRA valued at $300,000 in 2007
      bracket once they retire. A Roth IRA conversion may           may have decreased to $200,000 now. If the $200,000 is
      prove to be a “wash” – they’ll pay taxes at the same          converted in 2010, the tax liability will be locked-in on this
      tax rate no matter when they take the money out.              lower amount and any additional growth, taken as a qualified
The tax liability on a Roth IRA conversion will likely be           distribution from the Roth IRA, will be completely tax-free.
the primary roadblock for your clients. While a client can          Further, if the market continues its historical pattern of long-
elect to withhold taxes from the amount being converted,            term growth, those losses may eventually be recouped inside
doing so reduces the amount of money eligible for tax-free          a Roth IRA, with the appreciated assets distributed as qualified
growth in the Roth IRA. In addition, the amount withheld            distributions, tax-free. An analysis of the taxes paid on the
will be considered a taxable distribution to the client and, if     conversion versus the potential long-term tax savings may
the client is under 59½, a 10% tax penalty may apply. To fully      make the up-front tax liability easier for the client to consider.
maximize the benefits of the Roth IRA conversion, a client
may want to consider using non-retirement assets to pay             3. Clients can Change their Minds after a Conversion
the taxes due.                                                      If asset values continue to decline after a conversion, the
                                                                    IRS permits a recharacterization (“undo”) of the converted
Capitalize on a Complete Roth IRA Evaluation                        amount back into a traditional IRA. Recharacterization rules
Most advisors will conduct a basic Roth IRA analysis with           allow a conversion to be undone as late as the due date
their clients by weighing the benefits of tax-free income in        of the tax return, including extensions, for the tax year in
retirement against the tax liability triggered by a conversion      which the conversion took place. For example, if a client
to a Roth IRA. Advisors who want to help their clients              converted a traditional IRA to a Roth IRA in January 2009, a
take full advantage of the opportunity, and set themselves          recharacterization could take place as late as October 15, 2010.
apart, should consider the full range of opportunities when
                                                                    If a $200,000 Roth IRA declines in value to $150,000
discussing a Roth IRA conversion with their clients. The
                                                                    after a conversion, the client can recharacterize back to
Roth IRA and retirement planning specialists of the Jackson
                                                                    a traditional IRA by the due date of the tax return. To
Retirement and Wealth Strategies Group can help you and
                                                                    take advantage of the lower value, the client could then
your clients thoroughly evaluate this opportunity.
                                                                    reconvert at the lower value if:

 1. Protect Against Higher Future Tax Rates                            1) the reconversion takes place no sooner than the year
Historically, the highest marginal tax rate has generally                 following the year of the original conversion, or
exceeded the current rate of 35%. Due to increased budget
                                                                       2) if later, 30 days after a recharacterization.
deficits and government involvement in the most recent
economic crisis, many think tax rates are likely to increase        This strategy enables the client to capture a lower asset
in the future. If your clients are concerned about the              value and pay less in taxes.
uncertainty of future tax rates and the possibility of paying

For representative use only. Not for public distribution.
4. Harvesting Tax Losses to Offset Conversion Income              8. Tax-free Stretch Distributions to Beneficiaries
Clients with specific tax losses may benefit from a Roth IRA      Another advantage of converting retirement assets to a Roth
conversion. For example, taxpayers with tax losses such as net    IRA is the provision that permits beneficiaries to receive an
operating loss (NOL) carry-forwards, charitable contribution      inherited IRA over the beneficiary’s life expectancy. Similar
carry-forwards, nonrefundable tax credits, other business         to traditional IRAs, Roth IRAs can be “stretched.” However,
or ordinary losses, and unused deductions may benefit by          a Roth IRA permits the undistributed amount to continue
generating income from a Roth IRA conversion. A business          to grow tax-free over the beneficiary’s lifetime, compared
owner with taxable income of $100,000 and NOL carry-              with the tax-deferred growth of a traditional IRA. Note:
forwards of $175,000 has negative income of $75,000. By           An inherited IRA cannot be converted to an inherited
generating income via a Roth IRA conversion in the amount of      Roth IRA. Therefore, the conversion to a Roth IRA must
$75,000, the full amount of the NOL carry-forward could offset    occur before the original owner’s death.
the additional income generated by the Roth IRA conversion.
                                                                  9. Assets in Qualified Retirement Plans
5. Reduce the Size of a Taxable Estate                            As of January 1, 2008, individuals with qualified plan
The value of a Roth IRA is included in an individual’s estate.    assets can directly convert those assets to a Roth IRA. It is
However, if a taxpayer converts a traditional IRA to a Roth       no longer necessary to roll over to a traditional IRA and
IRA, the taxable estate will be reduced by the income taxes       then convert to a Roth IRA. Before rolling money out of
paid on the conversion, thereby reducing any estate taxes         a qualified retirement plan, check to see if any after-tax
that may be due. In addition, the beneficiaries inherit the       contributions were made to the plan. If so, those after-tax
proceeds tax-free from the Roth IRA, compared with assets         contributions may be eligible to be directly converted
taxed as ordinary income from a traditional IRA.                  tax-free to a Roth IRA. This option may be lost if the assets
                                                                  are rolled over to a traditional IRA.
6. Funding a Trust with Roth IRA Assets
                                                                  In addition, non-spouse beneficiaries of qualified retirement
If IRA assets will be passed to a trust upon death, converting
                                                                  plan assets are able to convert and transfer the inherited
to a Roth IRA can be advantageous. Trusts are commonly
                                                                  assets directly to an inherited Roth IRA. Note: Inherited
used for wealth transfer, but the investments held inside
                                                                  traditional IRA assets cannot be converted to a Roth IRA.
the trust can cause a tax dilemma for a trustee. Taxable
                                                                  Therefore, if inherited assets are transferred to an inherited
income generated inside a trust will either be distributed
                                                                  traditional IRA, the ability to convert to an inherited Roth
to an income beneficiary or retained inside the trust. Both
                                                                  IRA will be lost.
scenarios may not be ideal because of the resulting taxes
to the income beneficiary or the trust. Keep in mind that all
inherited IRAs are subject to required minimum distribution
(RMD) rules. Funding a trust with a Roth IRA eliminates the
taxation issue of RMDs within the trust.
                                                                      To learn how an opportunity to convert
7. Wealth Accumulation for Beneficiaries                              qualified retirement accounts to a Roth IRA
Some clients have assets in traditional IRAs or qualified
                                                                      in 2010 could play a role in your client’s
retirement plans not intended for income but rather to be
passed on to heirs. Unfortunately, RMD rules prohibit the
                                                                      retirement plan, contact the retirement
indefinite tax deferral of these assets. In contrast, Roth IRAs       planning specialists of the Jackson Retirement
are not subject to RMD for the original owner. As a result,           and Wealth Strategies Group at 800/866-4510.
a client can use a Roth IRA as an effective wealth transfer
vehicle. Not only does a Roth IRA provide indefinite tax-
deferral through the life of the owner, their beneficiaries
can inherit the assets tax-free. The beneficiaries may even
be interested in assisting with the tax liability on the Roth
IRA conversion today, in anticipation of inheriting the assets
tax-free down the road.

For representative use only. Not for public distribution.
Jackson is the marketing name for Jackson National Life Insurance Company® (Home Office: Lansing, Michigan) and Jackson National Life Insurance Company of New York®
(Home Office: Purchase, New York).
Jackson National Life Distributors LLC.
Jackson and its affiliates do not provide legal, tax or estate-planning advice. For questions regarding a specific situation, please consult a qualified advisor.

As required by the IRS, you are advised that any discussion of tax issues in this material is not intended or written to be used, and cannot be used,
(a) to avoid penalties imposed under the Internal Revenue Code or (b) to promote, market or recommend to another party any transaction or
matter addressed herein.

For representative use only. Not for public distribution.

CMC4029 10/09