Roth Regrets? Still Time to Change

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Wall Street Journal 2011-10-02

David John Marotta was featured in a Wall Street Journal article by Andrea Coombs online at “Roth Regrets? Still Time to Change.” Here is the section that mentioned David John Marotta directly:

Some financial advisers see the option to recharacterize as an opportunity to boost clients’ after-tax investment returns. David John Marotta, president of Charlottesville, Va.-based Marotta Wealth Management, says for his clients last year he converted about five times the amount of money they said they wanted in a Roth.

For each client, he divided the money into five Roth accounts, each focused on a distinct asset class. The account that performs the best, he’ll keep in a Roth for the tax-free gains. The others he will recharacterize.

And here is another section containing some of the general wisdom about the use of Roths in retirement and estate planning:

You can undo your conversion for any reason, but time is running short for those who converted to a Roth in 2010. The deadline for a do-over is Oct. 17 this year.

More people may be eyeing a do-over, if only because the number of people who converted to a Roth soared in 2010, thanks to new rules that made more people eligible to convert. Before 2010, people with adjusted gross income of more than $100,000 generally couldn’t convert to a Roth. Even today, some high-income taxpayers can’t contribute to a Roth — but they can convert a traditional IRA to a Roth.

Tapping a Roth IRA can be a useful retirement strategy. For one, Roth IRAs help to mitigate your tax burden. You contribute after-tax money but all of your contributions and earnings come out later tax-free, unlike the taxable distributions of most other retirement plans.

Also, unlike a traditional IRA, there are no required minimum distributions at age 70 1/2. Roths also are a useful estate-planning tool: You can leave your Roth to, say, your grandson and he won’t have to start distributions until the year after you die. Distributions are stretched out across his life; meanwhile, the account’s earnings grow tax-free.

Consider using a Roth conversion strategy for your retirement planning.

Follow David John Marotta:

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818…)