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Steve Walker

New IRA Law May Have Its Benefits

by Steve Walker on July 22, 2009

Do you have an IRA?

If so, it is probably what is termed a traditional IRA. As you may know, withdrawls from a traditional IRA are taxed as ordinary income. There is another type of IRA – a Roth IRA. One big difference between the two is that withdrawls from a Roth IRA are not taxed. Another important difference is that you do not have to make any withdrawls at age 70 ½ if you don’t want. This can be especially important to high-net-worth individuals because the Roth IRA can be passed on to their children. And, the children’s withdrawls are not taxed either.

The unfortunate thing is that the eligibility to contribute to Roth IRAs or convert a traditional IRA to a Roth IRA has been limited. For instance, in 2008 you could make a Roth IRA contribution if your adjusted gross income was less than $169,000 (married filing jointly). Effectively, upper income taxpayers have been precluded from enjoying the benefits of a Roth IRA.

In May 2006 there was a pretty significant change to the tax laws and the rules for Roth conversions. In 2010 and that one year only, any taxpayer will be allowed to convert a traditional IRA to a Roth. Converting the previously untaxed (ie, IRA rollovers) or tax deducted IRAs will generate taxes. But those taxes are to be paid one-half in 2011 and one-half in 20012 – a generous deferral indeed. Consider this added incentive. Many traditional IRAs have suffered steep stock market declines thus the conversions taxes will be considerably less.

This is pretty exciting stuff but it’s always best to make informed decisions. Be sure to check with your tax professional to determine if the 2010 rule change is right for your situation.

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Managing Savings in a Turbulent Economy

by Steve Walker on May 4, 2009

[Editors note: This article was originally published by Steve in February of this year. However, with continued market fluctuations, it is still relevant and focuses on a concern many facing divorce in Texas deal with daily as they work to preserve wealth and consider the division of their community property marital estate]


Our economy continues to shock and surprise, causing growing concern for investors, particularly those with their eye on retirement. A recent article by William Reichenstein in The American Association of Individual Investors Journal titled “Will Your Savings Last? What the Withdrawal Rate Studies Show” provides insight into what can be done to weather this economic storm. This article reviews two studies that seem to suggest a definitive safe withdrawal rate is possible to help minimize risk while maximizing the benefit to the investor.


First, the article points out that determining the withdrawal rate is a balancing act. If withdrawals begin with an initial rate that is too large, the investor will have an unacceptable large shortfall risk, which is defined as the probability of running out of money within the investor’s lifetime. However, if the withdrawals are too little, the investor’s lifestyle will be below his or her means. Based on the two studies evaluated in this article, the “Rule of Thumb” is as follows:


Assuming an asset allocation of at least 50% stocks, a retiree who withdraws 4% of the portfolio in the initial year and an inflation-adjusted equivalent amount each year thereafter has about a 90% to 95% probability that the portfolio will last 30 years.


As with any Rule of Thumb, this, while a useful thought, is grossly understated. Several factors can influence the shortfall risk. The first factor considered in this particular article is the sequence of returns; a portfolio will last much longer if returns are strong in the early years and poor in the later years than vice versa. Also, a portfolio’s asset allocation between stocks and bonds can vastly impact the longevity of the income stream. Finally, another major factor, as is always the case with “Uncle Sam”, is taxes. It is important to consider whether funds have been held in tax-deferred accounts such as 401(k) or if the funds are in a taxable account, where interest, dividends and realized capital gains are taxed each year.


Perhaps most notable, these studies implicitly assume that future gross stock and bond real returns will mimic- or at least be similar – to historical gross returns. Conversely, recent economic reports seem to imply that we are facing unchartered territory. In short, while using the 4% Rule of Thumb as a guideline, be prepared to adjust future withdrawals as necessary to accommodate to the economic fluctuations.

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