section 1 - The American College Online Learning Center

. Look for opportunities to convert.c. Planning Point: Conversion means the client is pre-paying a future tax obligation.It is a different way to save for retirement.d. State and Federal inheritance taxes(1) Converting means lowering the value of estate by the amount of taxespaid. This lowers estate taxes and reduces the effective tax rate on theconversion.e. Convert when the asset value is depressed.(1) Tax is assessed on the value of the account at the time of conversion, sothe lower the value, the less tax that must be paid.(2) The ability to recharacterize up to due date of the tax return takes awaysome of the risk of converting at the wrong time.f. Do not need plan funds to meet income needs(1) Convert prior to 70½ at lower tax rates(2) Avoid minimum distributions which increase taxable incomeg. Impact of Roth conversion on AGIh. Increase in Medicare premiums (age 65 or older)(1) Social Security subject to income tax(2) Itemized deductions tied to AGI(3) Medical expenses exceeding 7.5% of AGI(4) Unreimbursed employee business expenses(5) Passive activity loss associated with rental real estate (begin to lose afterAGI $100,000)(6) Loss of other tax creditsi. Planning Point: A client considering a Roth conversion in the current year maylook for ways to lower AGI by moving deductions, taking losses, increasingcharitable contributions.j. Problems with conversions(1) If value goes down (after recharacterization period), client will be veryunhappy.k. Not a good idea for a middle income client struggling to make ends meet inretirement (unless amount can be converted at a very low tax rate)LO 3-3-3: Strategies for maximizing tax-advantaged savings1. Maximizing contributionsa. Planners must understand the client’s specific situation:(1) What, if any, savings plans are clients eligible for at work?(2) Is the client self-employed and if so do they have employees?(3) If the client has a job, do they also have any supplemental self-employmentincome?(4) Is the client eligible to make deductible IRA contributions and/or Roth IRAcontributions?3.16