2010 Roth IRA Conversion Opportunity

What is a Roth IRA Conversion?

It is when you convert your Traditional IRA to a Roth IRA. The main benefit is the future earnings are now tax-free once in a Roth IRA. However, in order to convert you need to pay income tax on the money coming out of the Traditional IRA in the year it is converted.

Starting in 2010 there are two big changes with regard to Roth IRA Conversions:

1. Now anyone can convert (previously if you made over 100k, you were not allowed). This change is open-ended.
2. For 2010 only, the amount converted will not be included in your 2010 income taxes, but ½ in 2011 and ½ in 2012.

So does it make sense to convert your IRA in 2010? Maybe, it depends on your situation. But with these changes listed above, now is the time to start planning and evaluating. Call Park Avenue Wealth Management at 734-432-1966 to rewiew your options today!

Do you have a child or grandchild attending college now or are they entering college next year? If so, don’t delay! Please encourage them to complete our scholarship application, which can be obtained by calling the office at 734-432-1966. Park Avenue’s selection committee will award two $2,000 scholarships this year, to the students who best meets the criteria.

Act fast! The deadline for submission is November 30, 2009.

Nicholas Hopwood, CFP is partner at Park Avenue Wealth Management and has recently been named to the New Hope Center for Grief Support Board of Directors.

A longtime supporter of New Hope and its mission, Hopwood is pleased to take a more involved role with the non-profit. “I am honored New Hope invited me to join the board, and I look forward to adding value to the organization in any way I can,” Hopwood added.

New Hope Center for Grief Support is dedicated to providing grief support services to adults and children who are grieving after the death of a loved one. Founded in January 2000 by Cathy Clough, New Hope has experienced tremendous growth in services and supporters. New Hope’s philosphy is based on Christian Principles. People of all faiths are encouraged and invited to benefit from their grief support services and groups. In April 2009 they moved to their new office at 315 Griswold in the historic Mill Race Village in Northville, MI.

Click here to access or under the About Us tab click on Quarterly Newsletter.

Click here for the report or click on Research/Commentary.

Join Nick at Northville’s “Annual Senior Fest” on Wednesday June 10 at 11am at Waterford Bend Park in Northville MI, which is sponsored by the Northville Senior Center. Many Senior-related businesses will be in attendance. A picnic lunch and fabulous entertainment along with prizes are all included in your $8 ticket, whcih can be obtained at the Senior Center (map).

Come stop by our booth and say hello!

Securities Offered through LPL Financial Member FINRA SIPC

Try Filling Buckets!

Whether you are trying to save money or lose weight, there is no one-size-fits-all solution. However, as with dieting, sometimes the financial strategies that work the best are a little bit offbeat, even fun. Consider, for example, the success of Bank of America’s “Keep the Change” program where your debit card purchases are rounded up to the closest dollar and the difference is transferred from your checking to savings account. Another savings strategy found to be effective is the “bucket concept.” Rather than adhere to the traditional budgeting chore of writing down your expenses and tracking them each month, the bucket concept requires you to divide your spending into six categories and assign a specific percentage to each bucket.

The bucket approach was first encountered in Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker. In his book, that spent time on the New York Times’ bestseller list, Eker suggests dividing your income this way:

• 50% for necessities such as your mortgage payment or rent, car payments, groceries, utilities, gas, internet, cell phone, etc.

• 10% for long-term savingsto fund vacations, car repairs, house maintenance, clothes, etc.

• 10% for retirement accounts such as your 401(k) plan or IRAs.

• 10% for fun.

• 10% for education, from repaying student loans or funding your continuing personal development to saving for your children’s college education.

• 10% for charity.

When making your allocations to each bucket, consider 100% of your total after-tax income. This means, that in addition to income you earn, you also divide inheritances, bonuses, even your tax refund into six categories. Eker’s key is that this money should never be commingled. That is, you cannot borrow from long-term savings to fund a dinner out or forgo your regular deposit into the education bucket when your charity bucket is empty and you want to contribute $100 to your friend’s bike-a-thon.

The easiest way to fund each bucket would be to open separate checking accounts and have the appropriate percentage of your paycheck deposited into each account. This may not be feasible with your employer and could involve significant banking fees. Of course, you can open a 529 college savings plan and an IRA and have your education and retirement accounts funded directly from your checking account. Also, if you have a 401(k) at work, that account is funded automatically before you receive your check.

Interestingly, however, many people report success with substituting jars for checking accounts, particularly for the fun account where it is easy to spend cash. Perhaps that’s because by actually placing money in a jar it encourages them to think about finance more often than at bill-paying time or during an annual review with a financial advisor. Using a jar also can be especially effective if you are trying to save for a family vacation. For example, as your family sees the savings accumulate, they may be more inclined to make sacrifices to stay within your food budget. Of course, if you’d rather keep your long-term savings in a money market account to earn interest, putting a piece of paper noting the amount you invested in that account could also serve to motivate your family.

In discussing the bucket concept with clients, there are some common reactions. Most notably, many say that they spend far more than 50% of their income on necessities. In fact, given the high cost of living in particular parts of the country, surviving on half of what you make may be an impossible goal. Naturally, you can adjust Eker’s percentages to reflect your own circumstances. For example, if you need 65% for necessities, you might drop education, charity, and long-term savings to 5%. However, you are encouraged to at least reflect on the possibility of living on 50% of your income. Often, simply considering the idea can help you to start to prioritize your expenses and to think more proactively about what you are spending your money on each month. In fact, quite a few clients have come to the realization that they were living in a house that was too expensive for them.

Debt is another issue that can throw a wrench into Eker’s ideal percentages. If you have significant consumer debt, you may need to direct more than 50% to your necessities bucket in order to help you dig out of that hole as soon as possible.  However, once you are out of debt, funding your long-term savings account can help you stay debt-free. That is, as your long-term savings account builds up over time, you’ll have a cushion so that you won’t have to pull out your plastic to manage an unexpected car or home repair bill. In that sense, your long-term savings can also function as the traditional “emergency account.”  

Finally, Eker insists that your fun money be spent on a regular basis. Arguing that most budget plans fail because they create a spending plan that is too tight for comfort, Eker stipulates that fun money cannot accumulate for more than 90 days. Think of spending money on yourself as both a reward for saving in other buckets and as a means of re-energizing yourself to save more.

If you are considering implementing the bucket theory, it is suggested you keep in mind another piece of advice from T. Harv Eker. He believes that what we focus on expands and grows. Accordingly, he suggests that for at least seven days after implementing any financial self-improvement plan that you do absolutely no complaining - not out loud, not in a whisper, not even in a passing thought. The positive energy you create - in combination with the structurally sound bucket approach to budgeting - may be just what you need to move further down the road to financial freedom.

Securities Offered Through LPL Financial Member FINRA SIPC