First and foremost, thank you to the business owners who called about my last article regarding retirement plans in the coming year.Staying along the lines of retirement plans: Is this the year that you convert your Individual Retirement Account (IRA) to a ROTH IRA? An advantage to a ROTH is the tax-free distributions at retirement. A qualified distribution is generally one that is made after a five taxable year period of participation and either is made on or after the date the employee is 59 and a half, is made after the employee’s death, or is attributable to the employee’s disability.The downside is there is no deduction for additional contributions to this type of account. With the markets in a much lower state than even a year ago, this may be a consideration for 2009. Remember, the conversion is a taxable event in the year that you convert, subject to federal and state income tax, to the extent that those funds represent investment earnings and tax-deductible contributions made to the traditional IRA. Even if it makes overall financial sense to convert funds from a traditional IRA to a Roth IRA, paying tax on your IRA funds now may not be desirable.Standard mileage rates changed Jan. 1. The temporary rates that went into effect in the second half of 2008 due to higher gasoline prices have been rolled back. The new rates are 55 cents per mile for business miles driven by self employed individuals or employees using their personal vehicles; 24 cents per mile for medical or moving purposes and 14 cents per mile for charitable service reasons.Other changes in the IRS rules from www.irs.gov:
- Defined contribution plans increased by $3,000 to $49,000
- 401(k) plan contributions have increased from $15,500 to $16,500
- Make up contributions for persons over 50 years of age is now $5,500
- Annual gift exclusions have increased from $12,000 to $13,000 per person
In 2008, Congress passed and former President Bush signed a bill that temporarily eliminates the required minimum distributions for 2009 from qualified retirement accounts for those over 70 and a half years of age. Under the provision, no minimum distribution from individual retirement accounts or employer provided qualified retirement plans are required for this one-year suspension.In 1998, I had a crystal ball on my desk, and it had been there for years. Whenever anyone asked me where the market was going, I would wave my hands over the crystal ball and state in a loud and commanding voice, “Viola!” Of course, they would wait for the rest of the commentary, and I would look at them and say something to the effect that the present and future markets were “unclear” or “past performance was not an indication or guarantee of future performance.” We would laugh, and it was a good icebreaker for our conversations. My boss at the time did not have a sense of humor and asked me to get rid of my paperweight, which I complied with. When asked today what is going on in the markets, I wish I had my paperweight back.My concern is even when no outright fraud is involved, investors, particularly the elderly, get sucked in by the promise of higher rates; not realizing the cost of tying up their money and the potential fees involved. Placing your life savings into a plan that greatly restricts your access to principal and not understanding or having the time to read the paperwork that comes with this program may leave you stuck. If you are approached to buy something that sounds too good to be true, get a second opinion.Last but not least, have a good financial plan that includes investments for 2009. Have a plan and stick to it. That 52-inch Plasma HDTV you want will be obsolete in another year. Save your money, and invest as your tolerance for risk allows in vehicles you understand. One of the best investments I share is to pay down or pay off your credit cards. Where else can you get a guaranteed savings from your interest rate charges of 12 to 29 percent or higher per year?About Alex Donnell and Colorado Comprehensive Wealth ManagementAlex Donnell, founder and president of Colorado Comprehensive Wealth Management in Colorado Springs and independent investment advisor representative for Heartland Financial Consultants, has been a part of the financial services industry for more than 16 years.