Is a Roth Conversion a Good Idea when the Market Is Down?

A stock market downturn may be a prime time for a Roth IRA conversion, reports CNBC’s recent article titled “Here’s why a Roth individual retirement account conversion may pay off in a down market.” This is especially true if you were considering a Roth conversion and never got around to it.

A Roth conversion allows higher earners to sidestep earnings limits for Roth IRA contributions, which are capped at $144,00 MAGI (Modified Adjusted Gross Income) for singles and $214,000 for married couples filing jointly in 2022.

Investors make non-deductible contributions to a pre-tax IRA, before converting funds to a Roth IRA. The tradeoff is the upfront tax bill created by contributions and earnings. The bigger the pre-tax balance, the more taxes you’ll pay on the conversion. However, the current market may make this a perfect time for a Roth conversion.

Let’s say you own a traditional IRA worth $100,000, and its value drops to $65,000. Ouch! However, you can save money by converting $65,000 to a Roth instead of $100,000. You’ll pay taxes on the $65,000, not $100,000.

According to Fidelity Investments, the first quarter of 2022 saw Roth conversions increase by 18%, compared to the first quarter of 2021. That was before the second quarter’s market volatility, which has been more dramatic.

The decision to do a Roth conversion can’t take place in a vacuum. Consider how many years of tax savings it will take to break even on the upfront tax bill. Weigh combined balances across any other IRA accounts, because of the “pro-rata rule,” which factors in your total pre-tax and after-tax funds to determine your tax costs.

Attractive features of the Roth IRA are the freedom to take—or not take—distributions when you want, and there are no taxes on the withdrawals. However, there is an exception, and it pertains to conversions—the five year rule.

If you do a conversion from a traditional IRA to a Roth IRA, you have to wait five years before making any withdrawals of the converted balance, regardless of your age. It’s an expensive mistake, with a 10% penalty. The clock begins running on January 1 of the year of the conversion. If you are close to retirement and will need funds within that timeframe, you’ll need other assets to live on.

However, there’s more. If the conversion increases your Adjusted Gross Income (AGI), it may create other issues. Medicare Part B calculates monthly premiums using Modified Adjusted Gross Income (MAGI) from two years prior, which means a higher income in 2022 will lead to higher Medicare bills in 2024.

Before doing a Roth conversion, evaluate your entire financial and retirement situation.

Reference: CNBC (May 10, 2022) “Here’s why a Roth individual retirement account conversion may pay off in a down market”


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What Foods Can Help Prevent Dementia?

Two of the three compounds that can help reduce the chances of dementia are lutein and zeaxanthin. They are found in many vegetables and leafy greens, as well as in peas and spinach. Oranges and papaya are the main sources of the third ingredient, beta-cryptoxanthin, explains The Jerusalem Post’s recent article entitled “These three foods may help prevent dementia.”

The study’s lead researcher, Dr. May Beydoun, an expert on aging at the National Institutes of Health in Bethesda, Maryland, said that expanding people’s cognitive functioning is an important challenge to public health and that “antioxidants may help protect the brain from oxidative stress, which can damage cells,” she said.

However, Dr. Beydoun also noted that more research is needed to test whether antioxidants really “can help protect the brain from dementia.”

In a study published in the journal Neurology, Dr. Beydoun and the other researchers analyzed blood samples from more than 7,000 Americans. All participants were at least 45 years old and were physically examined, then interviewed at the beginning of the study. They were then followed up for 16 years, on average to monitor for dementia. Participants were divided into three groups based on the level of the antioxidants lutein, zeaxanthin and beta-cryptoxanthin in their blood.

The findings showed that an increase of 15.4 micromoles per liter of lutein and zeaxanthin levels was associated with a 7% decrease in the risk of dementia. An increase of 8.6 micromoles per liter of beta-cryptoxanthin reduced the chance of developing dementia by 14%.

The effect of antioxidants on dementia diminished when other factors were considered, including education, income, and exercise, the study found. “These factors may help explain the association between antioxidant and dementia levels,” Beydoun added. The team clarified that the findings are limited because they are based on a single blood test taken at the beginning of the study, which means that “they may not reflect people’s levels during their lifetime.”

Many studies have already shown that a diet rich in fruits and vegetables can help reduce the risk of dementia, from which tens of millions of people suffer worldwide. Experts have said that eating a particular diet may affect biological mechanisms that trigger dementia. What a person eats can also be indirectly linked to dementia by increasing the risk of diabetes, obesity and heart disease, which are known to be linked to dementia. Studies have found that a Mediterranean diet rich in vegetables, fruits, legumes and fish lowers blood pressure, which is a risk factor for the disease.

Dr. James Connell, an Alzheimer’s researcher, said that previous findings on the link between antioxidants and the risk of dementia showed “mixed” results. When lifestyle factors, socioeconomic status and physical activity were considered, the reduced risk found in the new study was smaller. Connell added that it’s important that researchers continue to study the protective effects of antioxidants in the context of other risk factors and work to understand how they’re connected.

Reference:  The Jerusalem Post (May 17, 2022) “These three foods may help prevent dementia”


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What Should I Know about Estate Planning before ‘I Do’?

Romance is in the air. Spring is the time for marriages, and with America coming out of the pandemic, wedding calendars will be filled.

AZ Big Media’s recent article entitled “5 estate planning tips for newlyweds” gives those ready to walk down the aisle a few things to consider.

  1. Prenuptial Agreement. Commonly referred to as a prenup, this is a written contract that you and your spouse enter into before getting legally married. It provides details on what happens to finances and assets during your marriage and, of course, in the event of divorce. A prenup is particularly important if one of the spouses already has significant assets and earnings and wishes to protect them in the event of divorce or death.
  2. Review you restate plan. Even if you come into a marriage with an existing plan, it’s out of date as soon as you’re wed.
  3. Update your beneficiary designations. Much of an individual’s estate plan takes place by beneficiary designations. Decide if you want your future spouse to be a beneficiary of life insurance, IRAs, or other pay on death accounts.
  4. Consider real estate. A married couple frequently opts to live in the residence of one of the spouses. This should be covered in the prenup. However, in a greater picture, decide in the event of the death of the owner, if you’d want this real estate to pass to the survivor, or would you want the survivor simply to have the right to live in the property for a specified period of time.
  5. Life insurance. You want to be sure that one spouse is taken care of in the event of your death. A married couple often relies on the incomes of both spouses, but death will wreck that plan. Think about life insurance as a substitute for a spouse’s earning capacity.

If you are soon-to-be-married or recently married and want to discuss it with an expert, make an appointment with a skilled estate planning attorney.

Reference:  AZ Big Media (March 23, 2022) “5 estate planning tips for newlyweds”


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