Retirement Income Planning

Where Have All the Pensions Gone?

If you aren’t receiving a pension from a former private sector employer, there’s a pretty good chance that your employee benefit package doesn’t include this once-cherished perk. According to a study by Towers Watson & Co., as of May 31, 2011, only 30% of Fortune 100 companies offered a defined benefit plan to new salaried employees. That’s down from 37% at the end of 2010, 43% in 2009, 47% in 2008, and 83% as recently as 2002. This is a far cry from 1985 when 90% of Fortune 100 companies offered a traditional pension plan to new employees.

While defined contribution plans, predominantly 401(k) plans, have replaced defined benefit plans in the private sector, the pension aspect is lacking in the majority of such plans today. Specifically, with limited exceptions, these plans generally don’t provide for a predetermined monthly payment that an employee can expect to receive beginning at a specified age for the rest of his/her life and his/her spouse’s life if married.

Furthermore, to the extent that a 401(k) plan is available, the future accumulation value of a participant’s account is unknown. It’s dependent upon several variables, including number of years of participation, IRS-imposed employee and employer contribution limits, employee contribution amounts, potential employer matching contributions, investment offerings, performance of chosen investments, participant loans, and potential plan distributions.

The inability to provide for a known monthly lifetime income upon retirement is not unique to employer-sponsored plans. It’s also common to employee and self-employed retirement plans, including, but not limited to, traditional IRA’s, Roth IRA’s, and SEP-IRA’s.

In addition, the nature of many investment vehicles, whether held inside or outside a retirement plan, don’t lend themselves to plan for a predictable known future lifetime or joint lifetime stream of income. Whether you’re talking about a savings account, CD, bond, stock, mutual fund, or exchange traded fund, this feature is generally unavailable.

Finally, a discussion about retirement income wouldn’t be complete without mentioning Social Security. Social Security is a wonderful provider of monthly retirement income for those individuals who qualify to receive it. Of all non self-funded plans, it comes closest to duplicating the pension aspect of a defined benefit plan. Unlike most defined benefit plans, the monthly benefit can increase as a result of cost of living adjustments. Unfortunately, the uncertainty that surrounds the Social Security system makes it difficult to plan for this benefit, especially for younger individuals.

Given (a) the scarcity of traditional defined benefit pension plans, (b) the inability of 401(k) plans, employee and self-employed retirement plans, and many nonretirement investment vehicles to provide for a predetermined monthly lifetime income beginning at a specified age, and (c) the inadequacy and uncertainty of the Social Security system, it behooves each and every one of us to create our own pension plan.

Income Tax Planning Retirement Income Planning

Sizeable Capital Loss Carryover? Rethink Your Retirement Plan Contributions

Last week’s post answered the question, “What is the right mix of retirement vs. nonretirement investments in a retirement income plan?” with a simple, but correct, answer: “It depends.” It pointed out that each scenario is different, requiring a professional analysis by a qualified retirement income planner of the interaction between a host of many variables unique to that situation.

One of the variables mentioned last week was income tax carryover losses. There are limitations on the amount of losses arising from various types of transactions that may be deducted on the tax return for the year in which the loss incurred. The portion of the loss that isn’t deductible in the year of origin of the loss must instead be carried forward to the following year, and potentially to additional future years, until the requisite type and amount of income becomes available to absorb the loss.

An example of a common income tax carryover loss is a capital loss. After netting capital losses against capital gains, to the extent that there is an excess of capital losses over capital gains, you end up with a net capital loss. Under income tax laws that have been in existence since at least 1980 when I started practicing as an accountant, only net capital losses up to $3,000 ($1,500 if married and filing a separate return) are allowed to be deducted in the current tax year. Any net losses in excess of the specified amounts are required be carried forward to the following year.

If you have a sizeable capital loss carryover, as many people do as a result of 2009 securities sales when the stock market plummeted, nondeductible contributions to a nonretirement investment account may be preferable to making deductible retirement plan contributions, including 401(k) plans, SEP-IRA plans, deductible IRA’s, and other retirement plans. This assumes that you’re not planning on selling an asset, such as a piece of real estate or a business that will generate a sizeable capital gain that can be used to absorb your capital loss carryover.

Why is this? Doesn’t it make sense to contribute to a retirement plan where you know that you’re going to receive a current income tax deduction, often sizeable, that will save you a bunch of income taxes today? Keeping in mind that the tradeoff for a current income tax deduction when it comes to retirement plan contributions is deferred income inclusion and associated taxation when the assets are distributed, perhaps at a higher tax rate, the answer to this question isn’t necessarily “yes.”

This is especially true when large capital loss carryovers are present. If you’re in this situation and you don’t realize any capital gains, you will be taking a $3,000 tax deduction on your tax return for many, many years with the possibility, depending upon your age and the amount of your loss, that your carryover loss won’t be used in its entirety during your lifetime. Given this situation, the goal should be to create opportunities for capital gains that can be used to absorb chunks of your capital loss carryover each year without incurring any income tax liability until such time as there is no further available capital loss.

How do you do this assuming limited financial resources? One option that can make sense in many situations is to divert funds that would otherwise be used for making deductible retirement plan contributions into nonretirement equity investment accounts that have the potential to generate capital gains. To the extent that the equities appreciate in value, they can be sold, with the gains generated by the sales used to offset a portion of your capital loss carryover without incurring any income tax liability. Furthermore, unlike other situations where capital losses aren’t present and your goal may be to hold onto investments for longer than a year in order to obtain the benefit of favorable long-term capital gains tax treatment, this isn’t necessary. Capital loss carry forwards can be offset again any capital gains, whether short- (i.e., one year or less) or long- (i.e., greater than one year) term.

Using this strategy, you won’t receive an income tax deduction for investing in your nonretirement investment account. You will, however, create an opportunity to potentially increase the value of your nonretirement account up to the amount of your capital loss carryover plus $3,000 without incurring any income tax liability that you might not otherwise do. In addition, once your capital loss carryover has been used in its entirety, subsequent sales of assets can create additional losses or capital gains that can be taxed at favorable long-term capital gains rates. All of this can occur without exposing yourself to guaranteed ordinary income taxation at potentially higher tax rates down the road when you take distributions from your retirement plans had you instead invested the same funds in retirement plans.

Retirement Income Planning

Nonretirement Investments – The Key to a Successful Retirement Income Plan

When was the last time someone asked you, “Hey, did you make your nonretirement investment plan contribution this year?” When we think of a retirement income plan, the first thing that typically comes to mind is retirement investments. This includes 401(k), 403(b), SEP-IRA, traditional IRA, Roth IRA, SIMPLE IRA, defined contribution, defined benefit, and other retirement plans. While the maximum allowable contribution varies by plan, the inherent goal of each of them is to provide a source of retirement funds.

With the exception of the Roth and nondeductible traditional IRA’s, both of which receive nondeductible contributions that grow tax-free provided certain rules are followed, all of the other plans enjoy tax-deferred growth. The reason that the growth isn’t nontaxable, and is instead tax-deferred, is because the source of funds for each of these plans is tax-deductible contributions. Whenever this is the case, although plan income, including interest and dividend income and capital gains aren’t taxed, plan distributions are taxable as ordinary income.

While it’s great that Congress has authorized the use of these various types of retirement plans and there are indisputable tax and other advantages associated with each of them, they generally aren’t sufficient for meeting most people’s retirement needs by themselves. Aside from the defined benefit plan, the contribution ceilings, especially those associated with traditional and Roth IRA plans, are inadequate in most cases for building a sizeable nest egg.

Recognizing this fact of life, it’s important to include nonretirement investments in most retirement income plans. What are nonretirement investments? These are simply the same types of investments that you find in retirement plans, i.e., stocks, bonds, mutual funds, exchange traded funds, annuities, CD’s, etc., however, ownership is different. Instead of these assets being owned by a 401(k) , SEP-IRA, Roth IRA, etc., they are owned by you, you and your spouse if married, or perhaps your living trust.

Nonretirement investments enjoy several advantages over retirement investments that make them attractive for funding retirement income plans. For one thing, although contributions to nonretirement investments aren’t tax-deductible, there also aren’t any annual limitations on the amount of contributions that can be made to them. Secondly, investments can be selected that have the potential to match the tax-deferred growth enjoyed by most retirement plans.

Nonretirement investments also offer tax advantages over their retirement plan counterparts when it comes to sales of assets. While gains from sales of assets in retirement plans are nontaxable, they are ultimately taxed as ordinary income at federal tax rates as high as 35% when distributions are taken from a plan. The same gains from sales of nonretirement assets, while they are immediately taxable, have the potential to enjoy favorable long-term capital gains rates of 15% in most cases assuming that the assets that have been sold have been held for more than one year. In addition, unlike losses resulting from sales of investments held within retirement plans that are non-deductible, the same losses in nonretirement plans are considered deductible capital losses.

One of the biggest advantages of nonretirement investments is the ability to control the timing of distributions and the associated exposure to income tax liability. This includes avoidance of required minimum distribution (“RMD”) rules. Beginning at age 70-1/2, with the exception of Roth IRA’s, you’re required to take minimum distributions from your retirement plans each year based on the value of each plan on December 31st of the previous year using an IRS table life expectancy factor, resulting in forced taxation. No such rules exist when it comes to nonretirement investments. In addition, unlike pre-age 59-1/2 distributions from retirement plans that are subject to a federal premature distribution penalty of 10% of the amount of the distribution, there are no such restrictions when it comes to nonretirement investments.

So what is the right mix of retirement vs. nonretirement investments? Read next week’s post to find out.

Roth IRA

Roth IRA Conversion – Analysis Paralysis? – Part 1 of 2

As is evident by the sheer number of blog posts to date about Roth IRA conversions – 33 – there’s a lot of things to consider when deciding whether a Roth IRA conversion makes sense for you. These include, but are not limited to, the following questions:

  • Should you do a Roth IRA conversion?
  • How much traditional IRA should be converted?
  • In which year(s) should a conversion be made?
  • Should you employ a multi-year conversion strategy, and, if so, what’s the best plan for you?
  • At which point during a particular year should a conversion be done?
  • Does it make sense to do multiple conversions in a single year?
  • Even though the income from a conversion in 2010 can be deferred to 2011 and 2012, should you do a conversion in 2010?
  • If you do a Roth IRA conversion in 2010, should you go with the default of reporting 50% of the conversion income on your 2011 tax returns and 50% on your 2012 returns or should you instead make an election to report 100% of your conversion income on your 2010 income tax returns?
  • Will your income tax rate be higher or lower than what it is now when you take distributions from your IRA accounts?
  • Which assets should be converted?
  • Should you set up multiple Roth IRA conversion investment accounts?
  • Is the current primary beneficiary of your traditional IRA a charity?
  • Are there retirement plans available for conversion other than active 401(k) plans?
  • What is the amount of projected income tax liability attributable to a potential conversion?
  • When will the tax liability attributable to the conversion need to be paid?
  • What sources of funds are available for payment of the tax liability?
  • Will withdrawals need to be made from the converted Roth IRA within five years of the conversion?
  • Do you have a life expectancy of five years or less with no living beneficiaries?
  • Do your itemized deductions and personal exemptions exceed your gross income such that you can convert a portion, or perhaps all, of your traditional IRA to a Roth IRA without incurring any income tax liability?
  • Do you own a rental property with a large passive activity loss carry forward that you can sell and do a Roth IRA conversion while incurring minimal or no income tax liability?
  • Is there a net operating loss that you can use to offset Roth IRA conversion income?
  • Is there a large charitable contribution available from the establishment of a charitable remainder trust that can be used to offset income from a Roth IRA conversion?
  • What is the basis of your traditional IRA, i.e., how much of your IRA has come from nondeductible IRA contributions or qualified retirement plan after-tax contributions?
  • Are you a surviving spouse in a low tax bracket who isn’t dependent on your IRA and one or more of your children are in a high income tax bracket?
  • What are the years and amounts of your projected required minimum distributions with and without a Roth IRA conversion?
  • What is the amount of projected taxable Social Security benefits that can be reduced by doing a Roth IRA conversion?
  • Do you have a SEP-IRA that can be converted to a Roth IRA?
  • Do you have a dormant 401(k) plan that can be converted?
  • How will a Roth IRA conversion affect financial aid qualification?
  • Will your Medicare Part B premium increase if you do a Roth IRA conversion?
  • If you do a Roth IRA conversion in 2010, will your Medicare Part B premium increase in more than one year?
  • What are the income tax consequences of a partial 72(t) Roth IRA conversion?
  • Should you not do a full Roth IRA conversion and instead leave funds in your traditional IRA for future nondeductible IRA contributions?

Feeling overwhelmed? Read Part 2 next week.

Roth IRA

Not Converting 100% of Your Traditional IRA’s? – Don’t Use All of Your Basis – Part 2

If you haven’t yet read last week’s post, I recommend that you do so before reading this one. Last week’s post listed three types of partial Roth IRA conversion scenarios and stated that the calculation of taxable gain in scenarios #2 and 3 can be problematic when basis exists if you’re not careful. This week’s posts illustrates each of the three scenarios.

Scenario #1 – Conversion of a Portion of a Single Traditional IRA Account

Suppose you own one traditional IRA account with a value of $120,000 and basis of $100,000. If you convert 50% of the account value, or $60,000 to a Roth IRA, you would use 50% of your basis, or $50,000 to calculate your taxable gain as follows: $60,000 – $50,000 = $10,000. Your remaining unused basis would be $50,000 (total basis of $100,000 less basis used of $50,000).

Scenario #2 – Conversion of a Portion of a Traditional IRA Account Where There are Multiple Traditional IRA Accounts

For this scenario, let’s assume that you own two traditional IRA accounts, consisting of a contributory and a SEP-IRA account with the following value and basis:

Account Type

Current Value


Contributory IRA


$ 80,000




$   0




$ 80,000

Let’s assume that you convert 50%, or $100,000, of your SEP-IRA account to a Roth IRA. What is the amount of basis that you should use to calculate your taxable gain? Is it (a) $0 (50% of your SEP-IRA basis), or (b) $26,667 (1/3 of the total basis of both of your traditional IRA accounts)?

For those of you who guessed “b,” you are correct. Per last week’s post, whenever you calculate the taxable gain in connection with a partial Roth IRA conversion, you always need to include the basis from all of your traditional IRA accounts in your calculation. Since you are converting $100,000, or 1/3 of the total value of your traditional IRA accounts of $300,000, you need to use 1/3 of the total basis of your two accounts, or $26,667 ($80,000 divided by 3), resulting in a taxable gain of $73,333 ($100,000 – $26,667).

Scenario #3 – Conversion of 100% of One of Two or More Traditional IRA Accounts

Suppose in Scenario #2, instead of converting 50% of your SEP-IRA, you decide instead to convert 100% of your contributory IRA to a Roth IRA. Your contributory IRA account has a high basis since all of the contributions to it have been nondeductible vs. 100% deductibility for all of the contributions to your SEP-IRA, resulting in $0 basis. If you convert 100% of your contributory IRA to a Roth IRA, is the amount of basis used to calculate your taxable gain (a) $80,000 (100% of your contributory IRA basis), or (b) $26,667 (1/3 of the total basis of both of your traditional IRA accounts)?

Once again, “b” is correct. As with Scenario #2, you cannot simply use the basis from the traditional IRA account that you are converting to calculate your taxable gain. When there are two or more traditional IRA accounts, you must use a pro rata portion of your basis based on the relative values of the accounts that you are converting. Since you are converting $100,000, or 1/3 of the total value of your traditional IRA accounts of $300,000 you need to use 1/3 of the total basis of your two accounts, or $26,667 ($80,000 divided by 3), resulting in a taxable gain of $73,333 ($100,000 – $26,667).

In both Scenarios #2 and #3, after doing your Roth IRA conversion, you will have remaining basis of $53,333 (total basis before conversion of $80,000 less basis used for the conversion of $26,667).

Whenever you’re considering a Roth IRA conversion, you should always follow these four steps:

  1. Take an inventory of your various traditional IRA accounts to make sure that you’re including all of them in your calculations, even those you aren’t converting. Include all of your regular, or contributory IRA accounts, rollover IRA’s, SEP-IRA’s, and 72(t) IRA’s in your inventory.
  2. Make sure that you include the basis of all of your traditional IRA accounts in your calculations. Assuming that you have basis in at least one account, you should be able to locate this on Form 8606 – Nondeductible IRAs that is part of the tax filing for the most recent year that you made a nondeductible contribution to a traditional IRA, received a distribution from a traditional IRA or Roth IRA, or did a Roth IRA conversion.
  3. For partial conversions of a single traditional IRA, include a pro rata portion of the basis of the account based on the value of the account being converted relative to the total value of the account.
  4. Where there are multiple accounts and you are either converting a portion of one account or 100% of one of two or more accounts, include a pro rata portion of the basis of all accounts based on the value being converted relative to the total value of all accounts.

Above all, always remember that if you’re not converting 100% of your traditional IRA’s to a Roth IRA, don’t use all of your basis!

Medicare Roth IRA

Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? – Part 1

It’s always amazing to me how one thing in life leads to another. This phenomenon is so true when it comes to the Roth IRA conversion series of blog posts that I’ve been writing and publishing since the beginning of the year, with the first post, Year of the Conversion, published six months ago on January 11th. As an example of the “one thing leads to another” phenomenon, the idea for last week’s post, Got Dormant 401(k)? Consider Converting to a Roth IRA came about as a result of writing the previous week’s post, Don’t Forget About Your SEP-IRA for Roth IRA Conversions.

This week’s post is yet another example of the “one thing leads to another” phenomenon. The second to last paragraph of Got Dormant 401(k)? Consider Converting to a Roth IRA discussed various factors to consider when contemplating the Roth IRA conversion decision. Included in the list of factors was the affect of the conversion on Medicare premiums. Since this is an important consideration for anyone 65 years of age or older who is evaluating a Roth IRA conversion, I am devoting this week and the next two week’s posts to this topic.

For those of you unfamiliar with Medicare insurance premiums and how they’re calculated by Social Security Administration (“SSA”), first some background regarding Medicare insurance premium amounts. There are two types of Medicare premiums: Part A and Part B. Both premium amounts are subject to change each year.

Part A is for hospital insurance. Most people don’t pay a monthly Part A premium because they or a spouse has 40 or more quarters of Medicare-covered employment. The amount of Part A premium is currently $254.00 per month for people having 30 – 39 quarters of Medicare-covered employment and is $461.00 per month for people who are not otherwise eligible for premium-free hospital insurance and have less than 30 quarters of Medicare-covered employment.

Part B is for medical insurance with a basic monthly premium that is currently either $96.40 or $110.50 per month for individuals who file an individual return with modified adjusted gross income (“MAGI”) of $85,000 or less or individuals who file a joint return with MAGI of $170,000 or less. The monthly premium is $96.40 for individuals who have their Part B premium withheld from their Social Security benefits and is $110.50 for all others. The 2010 Part B monthly premium for higher levels of income is as follows:

2010 Part B Monthly Premium

Individual Return With Income

Joint Return With Income


$85,001 – $107,000

$170,001 – $214,000


$107,001 – $160,000

$214,001 – $320,000


$160,001 – $214,000

$320,001 – $428,000


Above $214,000

Above $428,000

What’s important to keep in mind is that SSA will use the income reported on your federal income tax return from two years prior to the current year to determine the amount of your Part B Medicare premium. As an example, the income reported on your 2008 federal income tax return will be used to determine your monthly Part B premium in 2010. If your income has decreased since 2008, subject to meeting certain criteria, you may request that the income from a more recent tax year be used to determine your premium.

Part 2 will discuss the distinction between IRS’ and SSA’s definition of “modified adjusted gross income” and how this affects the Medicare Part B monthly premium amount. Part 3 will provide an example of how a 2010 Roth IRA conversion can directly impact the amount of your Part B monthly premium.

Roth IRA

Got Dormant 401(k)? Consider Converting to a Roth IRA

Last week’s blog post, Don’t Forget About Your SEP-IRA for Roth IRA Conversions, made the point that most people who are considering doing a Roth IRA conversion think about using a traditional IRA account into which deductible and/or nondeductible contributions have been made. Many people don’t realize that other types of retirement plans are also eligible for a Roth IRA conversion. One such plan is the popular 401(k).

Many employers allow former employees to keep their 401(k) plans intact, however, there’s an often-overlooked catch which I’ll get to shortly. As a result, 401(k) plans often lie dormant for years after an individual parts ways with his/her employer. In addition to limitation of investment choices, this can also result in an unpleasant surprise for a plan participant’s beneficiaries upon the plan participant’s death. This is due to the fact that employers that permit former employees to retain their 401(k) plans generally don’t allow them to do so indefinitely. Most plans require immediate distribution of plan assets at death, resulting in immediate taxation and the abrupt end of tax-deferred growth of the plan.

The lack of investment choices and the exposure to immediate taxation upon death are two great reasons, in my opinion, to move 401(k) plan assets into another tax-deferred vehicle as soon as possible following employment termination. Before 2008, besides a new employer’s 401(k) plan, the only choice available for rollover of 401(k) plan assets was a traditional IRA account. If you wanted to move your 401(k) plan assets into a Roth IRA, a two-step process was required whereby you first needed to roll 401(k) funds over to a traditional IRA account and then do a Roth IRA conversion of your traditional IRA.

As a result of a change made by the Pension Protection Act of 2006, beginning in 2008, funds from 401(k) plans can now be rolled directly to a Roth IRA via a Roth IRA conversion. Unlike 401(k) plans, with both Roth and traditional IRA’s, there are generally a myriad of investments from which you can choose, depending upon the financial institution you use as your custodian. Unlike traditional IRA’s where assets continue to grow tax-deferred until distributed, all pre-tax contributions and earnings are taxable upon conversion to a Roth IRA, with future earnings and growth accumulating tax-free inside the Roth IRA.

At a minimum, with limited exceptions which are beyond the scope of this blog post, most 401(k) plans should be rolled over to a traditional IRA upon separation from employment. Before doing this, however, a 401(k) plan participant should evaluate whether it makes more sense instead to do a Roth IRA conversion. As with all Roth IRA conversion decisions, there are many factors to consider. These include, but are not limited to, the size of the 401(k) plan, amount of pre-tax contributions and earnings, availability of losses and deductions to offset income from the conversion, current and projected income tax brackets, the plan participant’s age and general health, potential beneficiaries, and affect on taxation of Social Security benefits, Medicare premiums, and qualification for college financial aid.

Do you have a dormant 401(k)? If so, consider converting to a Roth IRA.

Roth IRA

Don’t Forget About Your SEP-IRA for Roth IRA Conversions

On a recent occasion, I was discussing the Roth IRA conversion strategy with a long-time friend who told me that he converted his IRA to a Roth IRA years ago, and furthermore, he spread the income from the conversion over four years to reduce his tax bite. My friend was referring to the one-time opportunity to do a Roth IRA conversion in 1998 and spread the income from the conversion over four years starting with 1998 provided that your modified adjusted gross income was less than $100,000.

I knew that, in addition to his Roth IRA, my friend, who is an employee of his closely-held corporation, had another type of retirement plan. When I questioned him about this, he told me that he also has a SEP-IRA account into which he makes contributions every year. I asked him if he was aware that he could convert a portion, or all, of his SEP-IRA to a Roth IRA and he told me he didn’t know he could do this.

My friend is not alone. Some of you may have noticed in last week’s blog post, The 45 to 60 5-Year Roth IRA Conversion Strategy – Part 4 that a SEP-IRA was used in the hypothetical Roth IRA conversion strategy spreadsheet and may have wondered about the ability to use a SEP-IRA to do a Roth IRA conversion.

When you hear about doing a Roth IRA conversion, most people immediately think about using a traditional IRA account into which you made, or are still making, deductible and/or nondeductible contributions, the maximum contribution limits of which began at $1,500 in 1974, increased to $2,000 in 1981, $4,000 in 2005, and $5,000 in 2008, with an additional $1,000 for individuals 50 and over beginning in 2002. Traditional IRA’s can also include rollovers, or tax-free distributions, from another retirement plan, such as a 401(k) or 403(b) plan.

What isn’t so common, and is often lost in the Roth IRA conversion conversation, is the ability to use a SEP-IRA for the conversion. For those of you not familiar with SEP-IRA’s, this is a retirement plan used by self-employed individuals and small business owners. Sole proprietorships, Subchapter “S” and “C” corporations, partnerships, and LLC’s are all eligible to establish a SEP-IRA. Unlike traditional IRA’s which have relatively small contribution limits, currently $5,000 if under age 50 and $6,000 for individuals 50 and older, the maximum allowable contribution limit for SEP-IRA’s is much greater. Contributions of up to 25% of salary, or 20% of net adjusted self-employment income, up to $49,000, may be made to a SEP-IRA.

With this higher contribution limit, it isn’t unusual for SEP-IRA accounts to quickly grow to several hundred thousand dollars. Assuming similar starting dates, other than traditional IRA’s that contain sizeable rollovers from other retirement plans, the value of most SEP-IRA accounts typically dwarf those of traditional IRA’s. Given this situation, partial, rather than full, conversions of SEP-IRA’s generally will achieve the goal of minimizing income tax liability attributable to the conversion. Furthermore, assuming that ongoing contributions are still being made to the plan, a multi-year conversion strategy such as the hypothetical Roth IRA conversion strategy illustrated in last week’s blog post, The 45 to 60 5-Step Roth IRA Conversion Strategy – Part 4 can make a lot of sense.

If you have a SEP-IRA account, I would strongly urge you to explore the possibility of converting a portion, or all, of the current balance, as well as future contributions, to a Roth IRA, using a multi-year strategy such as the one illustrated in the four-part series, The 45 to 60 5-Setp Roth IRA Conversion Strategy.