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When and why should I consider a Roth IRA conversion?

Signature Estate & Investment Advisors LLCJennifer Kim, MS, CFP®, CMFC, ChFC®, CLU®, Partner

Los Angeles, CA Leading Wealth Advisor

Before addressing when and why an investor should consider a Roth IRA conversion, it is important first to un-derstand how one qualifies to partici-pate in a Roth and understand recent changes in the law that are good news for high net worth families.

Current guidelines concerning contributing to a Roth IRA state that an individual’s modified adjusted gross income (MAGI) may not ex-ceed $127,000, and a married couple’s combined (MAGI) may not exceed $188,000 to make a full contribution. If these income guidelines are not met, individuals and couples are disquali-fied from making any contributions to a Roth. The maximum contribution allowed is $5,500 a year, with an addi-tional $1,000 for anyone over age 50.

Given current and past income re-strictions on the Roth IRA since its es-tablishment in 1997, taxpayers in high brackets have simply been excluded from contributing to Roths. They have also been restricted from converting their pretax IRAs to a Roth IRA be-cause conversion was limited to those taxpayers with MAGI below $100,000.

Now, the good news: In 2010, new legislation permanently repealed the $100,000 MAGI income limitation. With Roth conversions available to

individuals of any income level, an unprecedented opportunity opened up for the wealthy. An individual or couple may now convert $100,000 or $1 million or more to a Roth IRA in a given year. What they earn makes no difference. But it is important to remember that this new law only affects the conversion limit and not the contribution limit.

The main attraction of a Roth IRA, whether created with contributions or conversions, is its tax-free growth. Any income earned by a Roth IRA is tax free. Period. Not only for you, but for your heirs as well, no matter how long they keep the Roth. So, if you convert your IRAs and 401ks to Roths at age 40 and live to be 80, you will enjoy 40 years of Roth income and never pay a dime of taxes.

Other reasons high net worth in-dividuals and families may want to consider converting to a Roth include:• The long-time horizon until retire-

ment, ideally at least 10–15 years or more, allows the accumulation to build up significantly tax free.• Conversion assets excluding earn-

ings may be taken out penalty free after five years for any reason.• Funds will be tax free for a first-

time home purchase, with a $10,000 lifetime limit.

• The ability exists to convert larger retirement accounts by rolling them over from 401ks and pensions.• The ability exists to decrease

total estate taxes by prepaying the income taxes now on the conversion, which will thereby decrease the total taxable estate.

While it makes best sense to do a conversion when you have enough funds available outside of the retire-ment account to pay the taxes, the timing, the “when” of a Roth IRA con-version, can be crucial. The year you do your conversion, whatever amount you convert, you will have to pay taxes on that money at your current tax rate. So, if you are currently in a lower tax bracket than when the funds will be used at retirement, it makes sense to convert to a Roth now.

One final note on timing: When the markets hit a slump, the value of your existing IRA and 401(k) accounts tied to market performance also decline. That decline not only reduces the overall worth of your estate, it lowers the amount you are converting and in turn reduces the taxes you pay to do the rollover. In short, when it comes to a Roth IRA conversion, being smart about the “when” can, without question, positively impact the “how much.”

By Jennifer Kim

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“When it comes to a Roth IRA conversion, being smart about the ‘when’ can positively impact the ‘how much.’”—Jennifer Kim

Signature Estate & Investment Advisors LLC 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067 310.712.2331

Assets Under Management $240 million (Kim) $3.2 billion (firm, as of 6/30/13)

Minimum Fee for Initial Meeting None required

Minimum Net Worth Requirement $500,000 (investment services) $5 million (Private Client Group)

Largest Client Net Worth Confidential

Financial Services Experience 21 years

Compensation Method Asset-based, fixed and hourly fees

Primary Custodians for Investor Assets Charles Schwab & Co. and Fidelity Investments

Professional Services Provided Investment advisory and money management services, private client wealth management, corporate retirement planning, estate planning, insurance planning and philanthropic planning

Website www.seia.com Email jkim@seia.com

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How to reach Jennifer Kim

Please call my office at 310.712.2323 to schedule a meeting, either over the telephone or face to face.

“The Road Not Taken,” by Robert Frost. I have always

loved this poem because in life, you have to select one road

without knowing where it will lead, and I feel very fortunate for all the ones I have chosen

throughout my life.

My favorite poeM…

My hobbies are…

Entertaining, cooking, exercising and oil painting

Drive: The Surprising Truth About What Motivates Us, by Daniel H. Pink

the last book i read was…

About Jennifer KimJennifer Kim is a partner with Signature Estate & Investment Advisors, LLC (SEIA). Mrs. Kim received her bachelor of arts degree in economics from the University of California, Los Angeles (UCLA) in 1992. She has been in the securities and insurance business since 1993, and she specializes in investment and wealth management for affluent individuals and corporations. Mrs. Kim is a certified financial planner (CFP) professional. She completed the chartered financial consultant (ChFC) and chartered life underwriter (CLU) certifications through the American College. Mrs. Kim also completed the Chartered Mutual Fund Counselor (CMFC) Education program. Mrs. Kim lives in the Hancock Park area of Los Angeles with her husband and four children.

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Signature Estate & Investment Advisors LLC is featured in Worth® 2013 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this section have completed questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained herein is for informational purposes, and although the list of advisors presented in this section is drawn from sources believed to be reliable and independently reviewed, the accuracy or completeness of this information is not guaranteed. No person or firm listed in this section should be construed as an endorsement by Worth®, and Worth® will not be responsible for the performance, acts or omissions of any such advisor. It should not be assumed that the past performance of any advisors featured in this special section will equal or be an indicator of future performance. Worth®, a Sandow Media publication, is a financial publisher and does not recommend or endorse investment, legal or tax advisors, investment strategies or particular investments. Those seeking specific investment advice should consider a qualified and licensed investment professional. Worth® is a registered trademark of Sandow Media LLC. See “About Us” for additional program details at http://www.worth.com/index.php/about-worth.

Jennifer Kim, MS, CFP®, CMFC, ChFC®, CLU® Partner

Signature Estate & Investment Advisors LLC2121 Avenue of the Stars, Suite 1600

Los Angeles, CA 90067Tel. 310.712.2323

jkim@seia.comwww.seia.com