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My tax preparer again this year advised might want to check with that tax preparer and
me to set up a Roth IRA. Please tell me decide if it makes more sense to convert smaller
again the benefits of setting up these sums over a few years to dampen the tax bite.
accounts and the parameters. Also, can I
transfer money from an existing IRA to a I am retired and have concerns about the
Roth account? American dollar continuing to lose value. I
—Hayward Ludens, via e-mail have been considering moving a portion of
my funds into precious metals as a hedge
HAYWARD, YOUR TAX preparer couldn’t be more against the dollar. Would this be wise?
right. As far as I am concerned, anyone who is eli- —Ron Markwood, Fort Collins, Colorado
gible to invest in a Roth should do it.
Use Roth for
KIE TH LATHROP
Let’s walk through the basics: If you are under I ALWAYS GET concerned when people tell me they
50 and single with modified adjusted gross income are considering making a big move in any one direc-
(MAGI) of $95,000 or less, or if you are a married tion. I am a believer in diversification; the best long-
couple filing a joint return with MAGI of $150,000 or term approach is to spread your assets among a
less, you can invest the maximum of $4,000 per per- variety of different types of asset classes.
son in 2006. If you are over 50 the maximum annual I bet part of your motivation comes from the
contribution rises to $5,000. fact that precious metals have been on an absolute
The main difference between a Roth and a tear recently. The price of gold hit a 25-year high in
traditional IRA is that money you put in a Roth has early 2006. Geopolitical concerns, the weakening dol-
already been taxed—there is no tax break on your lar you refer to and a spike in demand from indus-
initial investment. With the traditional IRA, you typ- trializing nations such as China are all mentioned as
ically invest pretax money, which produces an factorsintheprecious-metalrally.
immediate tax break. I agree with you that precious metals look smart
But with a Roth you can end up with a lot more right now, but we can’t overlook the fact that they
in your pocket. That’s because after the age of 59 1/2, have already had a big run. So consider placing just
as long as you have owned the Roth for at least five a portion of your assets in precious metals; as much
years, all your withdrawals will be completely tax- as 20 percent seems reasonable to me. You will get
free. Compare that to a traditional IRA or 401(k), the hedge you want while remaining diversified.
where every dollar you withdraw will be hit with
income tax. I owe $88,000 and have seven years remain-
Also, there are no required “minimum distribu- ing on my mortgage. My interest rate is 6. 9
tions” once you reach 70 1/2. Unlike a traditional IRA, percent. I also have a balance of $75,000 on
with a Roth the IRS does not require that you make a home equity line of credit at an elevating
withdrawals; you can pass along the entire account rate of 7. 5 percent. Should I refinance and
to your heirs, and they, too, will not have to pay tax. combine both loans into one?
Any traditional IRA assets you leave to your benefi- —Vilma Basco, via e-mail
ciaries will be hit with income tax.
The money you originally contribute to a Roth THE PAINFUL lesson you are learning is that home
has no strings attached; you can withdraw that money equity lines of credit (HELOCs) are dangerous when
at any time no matter how old you are or how long interest rates are rising, as they have been for the past
the money has been in the Roth, without any taxes two years. That’s because HELOC rates are not fixed;
or penalties. It’s only the earnings on your contribu- they pretty much move in lock step with every change
tions that have to stay in the Roth for at least five in short-term interest rates.
years and until you are 59 1/2 to be free of a 10 per- Assuming you aren’t planning to move soon,
cent penalty and income tax. and if your FICO credit scores are good, you should
For example, let’s say you are under 50 and be able to refinance both loans into one fixed-rate
invest $4,000 in each of the next three years, earn- loan with a rate below 6 percent. Since you have
ing an average of 8 percent a year. After three years only seven years left on your primary mortgage, you
your Roth is worth $14,024. The $12,000 you should consider a 10-year mortgage— 15 years at
invested is yours to withdraw at any time, without the most. That should give you plenty of time to pay
tax or penalty. off the combined balances.
As for transferring an existing IRA into a Roth, Your total payment on the fixed 10-year would
you can do so, but only if your MAGI is below be just under $1,800 a month. This is a few hundred
$100,000 (for both single people and married cou- dollars more than your current combined payments,
ples). Note that you will have to pay ordinary in- but the HELOC could keep rising. Locking into a
come tax on whatever amount you convert. So you fixed rate will buy you a lot more security. C