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Money Girl
102 MG Turn Panic into Tax Profits!
Hey, Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them. Where you left them. Investing involves risk, including risk of loss. Fidelity brokerage services LLC member NYSE SIPC. Are you struggling to close deals? Cold outreach is wasting the time of both the buyer and seller at every stage, especially when sellers are using outdated data. Your organization can overcome these challenges with LinkedIn Sales Navigator, the first deep sales platform. Right now, you can try LinkedIn Sales Navigator and get a 60 day free trial at LinkedIn.com/trial. That is LinkedIn.com/trial for a 60 day free trial. Let LinkedIn Sales Navigator help you sell like a superstar today. Hello and welcome to Money Girls, quick and dirty tips for our richer life. I'm your host, Laura Adams. Today's topic is about a way to actually profit from the decline of the financial markets. By converting a traditional IRA into a Roth account, if you're eligible. One of the major distinctions between a traditional and Roth IRA is that Roth accounts require you to invest after tax money. You don't get an upfront tax break like you do with a traditional IRA. But once taxes are initially paid, you never have to pay tax on funds in a Roth account again. As long as you've had a Roth for at least five years, when you begin to take qualified distributions, after the age of 59 and 1/2, there is nothing to pay Uncle Sam. That's a nice retirement gift. If you have a traditional IRA, chances are its value has decreased this year due to the volatile stock market. That's actually good when it comes to converting it to a Roth. This is because you must pay income tax on any amount you convert that wasn't previously taxed. How much tax you pay depends on your income tax bracket and the total amount that you'll convert to a Roth. You may be wondering, "Why would I want to take a tax hit now?" Well, the reality is that tax must be paid on that money eventually. If it remains in a traditional IRA, you are simply deferring taxes until the time you begin to take distributions in the future. But what if tax rates are lower now than they will be in the future? Or what if you'll be in a higher tax bracket at retirement than you are now? In either of these situations, it could make sense to pay less in taxes now than to wait and pay more in the future. Besides the timing of taxation, another difference between traditional and Roth IRAs is what happens to the money once you reach age 70 and 1/2. With traditional IRAs, you must begin taking mandatory distributions from the account at this age. However, with Roths, there are never mandatory distributions, no matter your age. This means you can contribute to the account past age 70 and 1/2 and leave the money there until your death. This feature makes Roth IRAs a great vehicle for money that you want to pass on to your heirs. These are a couple of the benefits that make Roth IRAs one of the most recommended retirement-saving vehicles for those in the middle class. The only restriction is that you can't make too much money. You cannot make over $100,000 for the tax year you decide to do a Roth conversion. And once you have the Roth in place, your income cannot exceed annual limits set by the IRS and still make contributions. For 2008, this income limit is $169,000 if you're married and filed jointly. If you file taxes as a single person or head of household, the income limit is $116,000. Here's a tip if you begin investing in a Roth IRA, but find later on that your income exceeds the allowable limits. Simply leave the Roth in place to continue to grow, but open a new traditional IRA and begin investing in it instead. So much of what we want to do can seem impossible, but the highest achievers among us are the people still reaching for something, the ones who aren't satisfied to stay where they are and want to keep climbing higher. It's those people who approach the impossible and embrace it. There's a vehicle for people like that. It's called the Defender. The Defender is an icon reimagined through thoroughly modern design. It's got a tough, rigid body design and durable, lightweight, monocoque architecture for extra strength. With precise detailing and compelling proportions, the exterior of the Defender is designed with integrity. This is a vehicle capable of great things, engineered to meet challenges head-on with an exterior that's been tested to the extreme, experience the Defender's legendary capability off-road and on. And there's a family of vehicles for Defender. Meet the Defender 90, Defender 110, and the 8-seat Defender 130. So are you ready to embrace the impossible? Explore the Defender at LandRoverUSA.com. Are you struggling to close deals? Cold outreach is wasting the time of both the buyer and seller at every stage, especially when sellers are using outdated data. Your organization can overcome these challenges with LinkedIn Sales Navigator, the first deep sales platform. Right now, you can try LinkedIn Sales Navigator and get a 60-day free trial at LinkedIn.com/trial. That is LinkedIn.com/trial for a 60-day free trial. Let LinkedIn Sales Navigator help you sell like a superstar today. AI might be the most important new computer technology ever. It's storming every industry and literally billions of dollars are being invested. So buckle up. The problem is that AI needs lots of speed and processing power. So how do you compete without costs spiraling out of control? It's time to upgrade to the next generation of the cloud, Oracle Cloud Infrastructure, or OCI. OCI is a single platform for your infrastructure, database, application development, and AI needs. OCI has four to eight times the bandwidth of other clouds, offers one consistent price instead of variable regional pricing, and of course, nobody does data better than Oracle. So now you can train your AI models at twice to speed and less than half the cost of other clouds. If you want to do more and spend less like Uber, 8x8, and Databricks Mosaic, take a free test drive of OCI at oracle.com/advanced. That's oracle.com/advanced. Oracle.com/advanced. The annual maximum amount that you can contribute to a traditional IRA, Roth IRA, or to both, is limited by your taxable income up to $5,000 for 2008. So if you are a student and will only make $3,000 in 2008, for example, your IRA contributions cannot exceed $3,000. But if you're at least 50 years of age by the end of 2008, you can contribute an additional $1,000 as a catch-up provision for a maximum contribution of $6,000. And remember that you can make contributions to a traditional or Roth IRA up until April 15th, following the tax year. A Roth conversion is accomplished by doing a transfer or a rollover. With a transfer, you direct your IRA trustee to move your funds by a certain date. If you do a rollover, you receive the distribution check from the traditional IRA and send it to the new Roth account. This must be done within 60 days or you'll have to pay taxes plus an additional penalty for taking an early distribution. An IRA distribution is taxable in the year you receive it. So if you were to receive a distribution on the last day of 2008 and complete the rollover within 60 days, by the end of February 2009, for example, the transaction would be taxable in 2008. If you're eligible to convert a traditional IRA into a Roth this year, consider the benefits as well as the immediate tax consequences. If you wait until the market begins to recover, you may miss out on the opportunity to get a big discount on your retirement tax bill. I'm glad you're listening. Find a transcript of this show at moneygirl.quickanddirtytips.com and your email comments or questions are always welcome at money at quickanddirtytips.com. Choo-choo! That's all for now. Courtesy of Money Girl, your guide to a richer life. Since everyone's financial situation is different, this podcast is for educational purposes only and is not intended to be a substitute for seeking personalized professional advice.