securities and advisory services offered through fsc securities corporation, member finra/sipc, and...

Securities and advisory services offered through FSC Securities Corporation, Member FINRA/SIPC, and a registered investment advisor. Integrity Wealth Management is not affiliated with FSC Securities and is not registered as a Broker Dealer

Ralph G. Adamo, President & CEOIntegrity Wealth Management

3991 MacArthur Blvd.Newport Beach, CA 92660

(949) 955-1188www.IntegrityIWM.com

No bank guarantee Not a deposit Not FDIC / NCUA insured May lose value Not insured by any federal government agency

■ Funding■ Distributions■ Discussion

Agenda

Roth IRAs

■ Established 1/1/98

■ Similar to traditional IRAs except for these important differences:• No deductible contributions• Tax-free qualified distributions • Owner has no required distributions

Funding

Contributions for 2009

■ $5,000 (or $6,000 if 50 or older by end of year)

■ Two requirements• Earned income at least equal to amount

contributed • Below modified adjusted gross income (MAGI)

thresholds

MAGI Phase-out Ranges

■ Married filing jointly• $166,000–$176,000

■ Single• $105,000–$120,000

What Is MAGI?

Conversions

■ Rollover of assets from a traditional IRA,SEP-IRA or SIMPLE IRA to a Roth IRA• Two-year period must be met if converting a

SIMPLE IRA

■ IRA owner pays taxes on pretax dollars

■ 10% penalty does not apply

Conversion Process

IRAIRA Roth IRARoth IRA2) Direct rollover

• 1099R reporting• No 60-day rule

3) Indirect rollover• 1099R reporting• 60-day rule applies• No 12-month restriction

1) Redesignation

• 1099R reporting

Conversions for 2009

Convert to Roth IRA

■ Two requirements• MAGI is $100,000 or less• Single or file jointly with spouse

» Married filing separately lose ability to convert

Conversions After 2009

Convert to Roth IRA

■ No MAGI limits• Anyone can convert regardless of income level

Conversions in 2010

You can pay tax on conversion in 2010 OR split the bill, defer tax and pay:

■ One-half in 2011

■ One-half in 2012

What Will Your Tax Rate Be?

“New” income tax rates scheduled to sunset: “old” rates scheduled to return to your return

Conversion Caution

■ Using assets outside of the IRA to pay tax:• Reduces taxable estate• Maximizes long-term tax-deferral

■ Using IRA assets to pay tax may:• Subject some assets to income taxation• Incur a 10% early withdrawal penalty

Converting IRA After Age 70½

RMD amounts cannot beconverted or rolled to a Roth IRA

IRAIRA Roth IRARoth IRA

1. Distribute RMD amount from IRA

2. Convert balance to Roth IRA

RMD

You Can Now Convert from an Employer Plan

Who Let the Roth Out?

You can now also convert an inherited account

■ Applies only to eligible rollover distributions from employer plans

■ May be rolled to an inherited Roth IRA

■ Which distributions must be taken from Roth IRA?

■ Does it make sense for you?

Are You Looking to Accelerate a Deduction?

Section 691(c) deduction

■ Itemized deduction for estate taxes paid

■ Conversion causes you to pay income taxes sooner, BUT also accelerates use of this deduction, potentially reducing tax bill in half

The federal estate tax exemption amount is $2,000,000 in 2008 and increases to $3,500,000 in 2009. The highest federal estate tax rate is 45% in 2008 and 2009. The federal estate tax will be repealed on 1/1/10 until 12/31/10. Beginning 2011, the federal estate tax will be reinstated with a federal estate tax exemption amount of $1,000,000 and a maximum estate tax rate of 55%. Congress continues to discuss and consider legislation that, if passed, could change the estate tax exemption and estate tax rates for 2010 and beyond.

Conversion Do-overs

Recharacterization

■ First do-over• By tax return due date, including extensions

Reconversion

■ Doing over the do-over• In year following year of conversion• 30 days after recharacterization

Do-over Timeline

Conversion Period

10/15Last day to recharacterize

Reconversion Period After 30 days

1/1 to 12/31

Year 1Year 1 Year 2Year 2

1/1 to 12/31

Reconversion Examples

ScenarioScenario ConversionConversion RecharacterizationRecharacterization ReconversionReconversion

1 4/1/09 8/1/09 1/1/10

2 4/1/09 12/25/09 1/24/10

3 4/1/09 4/15/10 5/15/10

Time restrictions for eligible recharacterizations and the earliest reconversion date

Roth 401(k)/403(b)

Roth IRA Distributions

■ Qualified■ Nonqualified■ Required

(for beneficiaries)

Qualified (Tax-free) Distributions

Two requirements

1. Five years since you established a Roth IRA

2. Distribution is made for one of the following reasons:• Age 59½ or older• Disabled • Deceased• First-time home buyer

Nonqualified Distributions

If you take a distribution but fail to meet requirements for a qualified distribution, then the distribution is made in the following order:

■ Regular contributions

■ Conversion and rollover contributions• 10% penalty if within five years

■ Earnings• Taxes and 10% if no exception

Tricky Rollover Rules

■ New Roth IRA, then new five-year period

■ Existing Roth IRA, then rollover tracks Roth IRA five-year period

Tricky Rollover Rules

DRAC Rollover Example

Amount includes $65,000 after-tax contributions and $35,000 earnings

■Qualified distribution • $100,000 included as Roth IRA basis

■Nonqualified distribution• Basis and earnings track to Roth IRA

You May Wish to Get Started

In anticipation of a DRAC rollover, establish a Roth IRA now with either:

■Contributory Roth IRA

■Nondeductible IRA that is then converted toRoth IRA

• BUT beware of the aggregation rule

Required Distributions at Death

■ Death before required beginning date (RBD) rules

■ Designated beneficiary (DB)• May use five-year rule or life expectancy

■ No DB• Must use five-year rule

Death Distributions and the Five-year Rule

■ Required distributions waived for 2009

■ Five-year rule is currently a six-year rule • For deaths occurring between 2004 and 2009

Nonqualified Death Distributions

Roth IRA owner dies before end of five-year period beginning with:

■ First taxable year for which a contribution was made

■ Year of conversion contribution from traditional IRA or rollover

Qualified Death Distributions

■ Spousal rollover• Earlier of spouse’s or decedent’s five-year holding

period

■ All others• Decedent’s five-year holding period

Who’s Your Beneficiary?

■ Designated beneficiary (DB)• Spouse• Non-spousal individual• Qualifying trusts

■ Non-DB—estates, charities, etc.

Spouse

■ Lump sum

■ Five-year rule

■ Inherited Roth IRA• Annuitization• Spouse’s recalculated life expectancy

» Delayed until owner would have reached age 70½

■ Rollover

Non-spousal Individual

■ Lump sum

■ Five-year rule

■ Inherited Roth IRA• Annuitization• Life expectancy of beneficiary

Qualifying Trusts as DBs

■ Valid under state law

■ Irrevocable at death

■ Identifiable beneficiaries

■ Trust documentation by 10/31 of year following year of death

Qualifying Trusts

■ Lump sum

■ Five-year rule

■ Trust-owned inherited Roth IRA• Life expectancy of oldest trust beneficiary

Non-designated Beneficiaries

Multiple Beneficiaries

Important Dates for theYear AFTER Death

Case Study

$750,000 Roth IRA

■ 75-year-old owner dies having named two beneficiaries

Grand- Grand- daughter,daughter,

Age 25Age 25

Son,Son,Age 50Age 50

Opportunity for Separate Accounts

■ Separate accounts established by 12/31 of the year following the year of owner’s death

■ Son has 34.2 years during which to take distributions

■ Granddaughter has 58.2 years during which to take distributions

Thanks, but No Thanks

Disclaimers

■ Son executes a qualified disclaimer

■ His sons, ages 22 and 20, inherit his interest

■ Separate accounts established by 12/31 deadline

■ 22-year-old son’s distribution period is 61.1 years

■ 20-year-old son’s distribution period is 63 years

Roth IRA Advantages

Roth IRA Disadvantages

Do the Math

Analysis is required, because everyone’s situation is different

Assumptions include:

■When distributions will be taken

■What tax rates will be at the time of distributions

■Earnings during the interim

Possible Opportunities

■ You don’t need your traditional IRA for income and wish to leave it to someone.

■ You need your IRA to fund your credit shelter trust.

■ You are willing to pay income tax on conversion to reduce your estate (and thus your estate tax).

■ You have charitable deduction carryovers, investment tax credits, etc., that will offset income on conversion.

In Summary

■ Better understanding of funding Roth IRAs

■ Roth conversions

■ Distributions and beneficiary options

■ Decisions should be reviewed with your tax and legal advisors before making any changes

Securities and advisory services offered through FSC Securities Corporation, Member FINRA/SIPC, and a registered investment advisor. Integrity Wealth Management is not affiliated with FSC Securities and is not registered as a Broker Dealer

Ralph G. Adamo, President & CEOIntegrity Wealth Management

3991 MacArthur Blvd.Newport Beach, CA 92660

(949) 955-1188www.IntegrityIWM.com