1. The Roth IRA in 2010 –
America‟s New Next Tax Break
Edward R. Doughty, CFP®
<First and last name> is a Registered Representative with and, Securities offered through LPL Financial, Member FINRA/SIPC.

2. What experts are saying…
“The Roth IRA is the single best gift
Congress has ever presented to the
American taxpayer.”
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3. What the experts are saying…
“By allowing Roth IRAs, they also
created the single most powerful
estate building and wealth transfer
vehicle available today.”
“…By not imposing RMDs
on the owner, they gave the
American taxpayer one of the
greatest income tax „loop-
holes‟ in existence today.”
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4. What the experts are saying…
“The advantage of a Roth IRA over a
regularly-taxed account is obvious.
Either way you pay income tax up
front. But with Roth, you‟re then
done paying taxes; with a regular
account you‟re just getting started.”
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5. What the experts are saying…
“The essence of a Roth IRA
is that you pay tax on the seed,
but reap the harvest tax-free.”
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6. What the experts are saying…
“One of the smartest money moves a
young person can make is to invest
in a Roth IRA.
Follow the rules and any money you put
into one of these retirement-savings
accounts grows absolutely tax
free...Plus, an IRA is more flexible than
a 401(k) and other retirement plans
because you can invest it in almost
whatever you want, from stocks …
to bonds and real estate.”
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7. What the experts are saying…
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8. IRA basics
Regularly-taxed
Traditional IRA Roth IRA
account
You pay income tax, You may get a tax You pay income tax,
and then make your deduction, essentially and then make your
contribution with post-tax letting you deposit contribution with
dollars pre-tax dollars post-tax dollars
Your principal may be
subject to taxes on Any growth of principal is Any growth of principal is
dividends and capital gains tax-deferred* tax-free*
as it grows
You pay capital gains or You pay income tax on the You pay no further
ordinary income tax on your entire amount of taxes on qualified
gain at withdrawal your withdrawal withdrawals
* Principal is subject to market fluctuation and may lose value. 7

9. Traditional IRA deductibility rules
Traditional IRA deductibility limits for 2009
Tax filing Active Modified adjusted Deduction
status participant status gross income allowed
Individual is not active No limit Full deduction
Single or $55k or less Full deduction
head of
Individual is active More than $55k but less than $65k Partial deduction
household
$65k or more No deduction
Individual is not active and
No limit Full deduction
individual’s spouse is not active
$89k or less Full deduction
Married Individual is active More than $89k but less than $109k Partial deduction
- filing $109k or more No deduction
jointly $166k or less Full deduction
Individual is not active and More than $166k but less than
Partial deduction
individual’s spouse is active $176k
$176k or more No deduction
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10. The Parity Principle
Traditional IRA Roth IRA
Taxable income $50,000 $50,000
Contribution ($4,000) ($4,000)
Tax rate 25% 25%
After-tax contribution ($4,000) ($3,000)
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11. The Parity Principle
Traditional IRA Roth IRA
After-tax contribution ($4,000) ($3,000)
Growth rate 8% 8%
Time invested 30 30
(years)
Nest egg $453,133 $339,850
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12. The Parity Principle
Traditional IRA Roth IRA
Nest egg $453,133 $339,850
Tax rate 25% 25%
Tax due ($113,283) ---
After-tax nest egg $339,850 $339,850
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13. Tax rates at historic lows
Highest Highest
Year tax-rate Year tax-rate
(single) (single)
1950 91% 1971 70%
1951 91% 1972-78 70%
1952-53 92% 1979-80 70%
1954-63 91% 1981 69.125%
1964 77% 1982 50%
1965-67 70% 1983 50%
1968 75.25% 1984 50%
1969 77% 1985 50%
1970 71.75% 1986 50%
Source:http://www.ntu.org/main/page.php?PageID=19
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14. Current tax rates are low
“The current income tax rates are the lowest they’ve been
since World War II …Under current policy, federal
spending will rise to 32% of GDP by 2050, compared
with a current level of 19%. There is no way to fund that
spending without significant increases in tax rates.”
- David Wyss, Chief Economist at Standard & Poor‟s
Source: Pioneer Investments, “Worth the Wait: New Roth 401(k) Reshapes the Retirement Plan Landscape”
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15. The Roth IRA versus a Traditional IRA
Do you expect that your personal tax
rates will be higher or lower in the future?
How much Is a $100,000 Roth IRA worth?
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16. The Roth IRA Versus a Traditional IRA
Tax bracket Amount
A Roth IRA worth
$100,000 is equal to a
20% $125,000 Traditional IRA worth…?
28% $138,890
33% $149,250
35% $153,850
Where else does a Roth IRA win?
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17. Unique benefits: no RMDs
Unlike traditional IRAs,
no Required Minimum Distributions (RMDs)
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18. Unique benefits: Estate planning
 No RMDs gives Roth IRAs a distinct advantage in
estate planning
 Tax on conversion is “pre-paying” taxes…a gift for heirs
(without owing any gift taxes)
– “Pre-paying” taxes by converting also reduces the size of your taxable estate
– Withdrawals may be tax-free for heirs
 Minimum withdrawal rules will apply to heirs
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19. Unique benefits: No age limits
 Unlike Traditional IRAs, no age limits
– 8 or 85: start at any age, as long as income is being earned
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20. Unique benefits: Access to withdrawals
Roth IRA
Contributions can be withdrawn at any time without penalty tax or
income tax
Have income tax-free and penalty-tax-free withdrawals of earnings
after five years if you are age 59½ or in the following circumstances:
death, disability, or for a first-time home purchase up to $10,000
One of the penalty-tax-free, but not income-tax-free withdrawals
before age 59½ can be for higher education expenses
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21. Unique benefits: Social Security taxation
 Qualified Roth IRA distributions do not affect SS taxation
 Tax-exempt income that is included:
– Tax-exempt interest
– Series EE bond income
– Exclude income earned
abroad
 Traditional IRA distributions can increase the amount of Social
Security benefits that are taxed
Kaye Thomas. Guide to Roth IRA: Tax on Social Security. Fairmark Press Tax Guide for Investors.
http://www.fairmark.com/rothira/socsec.htm
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22. Unique benefits: Access to withdrawals
How much of your Social Security income is taxable?
 What‟s included in the calculation?
– All wages
– Any taxable or tax-free interest
– Distributions from pensions and traditional plans like IRAs and 401(k)s
– Half of your Social Security income
– Other taxable income
 How much of your Social Security is taxable?
– If married filing jointly and AGI is:
Under $32,000: 0% taxable
$32,000 - $43,999: 50% taxable
Greater than $44,000: 85% taxable
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23. Roth IRA advantages
 Qualifying distributions are tax-free  Greater flexibility
- Access contributions at any time tax-free
 Account value is effectively bigger
– especially if tax rates go up  Social Security taxation
- Tax-free bonds are included
 No Required Minimum Distributions - Qualifying Roth IRA distributions are
during life excluded
 No age limit on contributions with
earned income
 Diversify tax risk
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24. Roth IRA disadvantages
 All contributions are non-deductible
 The perceived tax benefit may never be realized, i.e., one might
not live to retirement or much beyond, in which case, the tax
structure of a Roth only serves to reduce an estate that may not
have been subject to tax.
 If contributions are made while in a higher tax bracket than when
withdrawals are made, a Traditional IRA may result in lower taxes.
 If converting to a Roth IRA, you may lose growth potential of
the money paid in taxes
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25. Roth IRA income limits for 2009 contributions
Filing Full
status Phased out No contribution
contribution
Single $105,000 -
$104,999 or less $120,000 or more
filers $120,000
Joint $166,000 -
$165,999 or less $176,000 or more
filers $176,000
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26. Roth IRA annual contribution limits
Total contribution
Year Standard contribution including catch up
provision
2007 $4,000 $5,000
2008 $5,000 $6,000
2009 $5,000 $6,000
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27. Current Roth IRA conversion limits
Filing status No conversion
Single filers $100,000 or more
Joint filers $100,000 or more
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28. What the experts are saying…
“The May 17, 2006 tax act, the Tax Increase
Prevention and Reconciliation Act (TIPRA),
presents wealthy Americans with an outstanding
lifetime-and-beyond tax break…
In 2010, wealthy Americans will be granted a
wonderful, new opportunity. They will, for the first
time, qualify for a Roth IRA conversion,
regardless of their income.”
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29. Convert in 2010
 No income limits for conversions of a Traditional IRA to a Roth IRA in 2010
– Limits on income levels for contributions and annual contribution amounts
remain in place
 Beneficiary IRAs or inherited IRAs from a person other than your
spouse cannot be converted
 If you‟re otherwise eligible, you can convert part of a Traditional IRA to
a Roth IRA. But you can’t convert only the nontaxable part.
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30. Tax implication
 Upon conversion, Traditional IRA assets are taxed as ordinary income
 But for 2010 conversions, these taxes can be paid evenly over two years
(2011 and 2012)
 Please note: Pre-tax contributions vs. nondeductible Traditional IRA contributions
 Converting an annuity?
- The Fair Market Value (or Actuarial Present Value) is used to determine the tax on
conversion
Source: http://www.nysscpa.org/cpajournal/2007/507/essentials/p48.htm
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31. Conversion tax in perspective
 The tax on conversion is not an extra tax that you must pay to get the benefits
of a Roth IRA
 Instead it is the payment of tax on the pre-tax growth that has already
accrued in the IRA
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32. Traditional IRA vs. Roth IRA – Income
Assumptions
Traditional IRA contains only deductible contributions.
Qualified Roth IRA distributions taken after five-year holding period.
Traditional IRA Roth IRA
$250,000 $250,000
@ 7.2% Growth @ 7.2%
$500,000 Balance after 10 years $500,000
$25,000 Annual withdrawals $25,000
-$7,500 30% income tax - 0%
$17,500 Spendable $25,000
Tax paid over 20 Years Tax paid over 20 years
$150,000 $0
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33. Traditional IRA vs. Roth IRA – Income
Social Security taxation
Assumptions
Married and filing jointly with $22,000 Social Security benefit.
$20,000 of additional taxable income.
Traditional IRA contains only deductible contributions.
Roth IRA distributions taken after five-year holding period.
Traditional IRA Roth IRA
$25,000 Annual withdrawals $25,000
$25,000 Added to SS $0
provisional income
$18,700 Annual taxable SS $0
Social Security benefits added Social Security benefits added
to the taxable income to the taxable income
over 20 years over 20 years
$374,000 $0
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34. Traditional IRA vs. Roth IRA–Income
Heirs – lump sum distribution
Traditional IRA Roth IRA
$250,000 $250,000
@ 7.2% Growth @ 7.2%
$500,000 Balance $500,000
after 10 years
$500,000 To heirs $500,000
- $150,000 30% income tax - 0%
Income tax (30%)
$350,000 Spendable $500,000
Tax paid Tax paid
$150,000 $0
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35. Traditional IRA vs. Roth IRA – Income
Heirs stretching distribution
Assumptions
Heir inherits $500,000 at age 50 and lives to age 84, with an assumed
growth rate of 7.2% while taking out IRS required distributions, total
beneficiary distributions equal $2.04 million.
Traditional IRA Roth IRA
$250,000 $250,000
@ 7.2% Growth @ 7.2%
$500,000 Balance after $500,000
10 years
$500,000 To heirs $500,000
@ 7.2% Growth @ 7.2%
$2.04 million Balance after $2.04 million
34 years
- $612,748 30% income tax - $0%
Tax paid Tax paid
$612,748 $0 34

36. Traditional IRA vs. Roth IRA
Traditional IRA Tax Roth IRA Tax
Owner’s tax
$150,000 on income $0
(over 20 years)
Additional
$374,000 $0
SS taxable
(over 20 years)
Heir’s tax
$150,000 $0
on lump sum
distribution
$612,748 Tax on stretched $0
distributions
Assuming qualified Roth distributions
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37. Roth IRA – FAQs
Tax rates in the future are unpredictable.
How can I know if converting will benefit me?
Just as you use diversification to deal with the
uncertainty of your investments, it can be a good idea
to have at least some money in Roth IRAs to diversify
your exposure to income taxes.
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38. Roth IRA – FAQs
What if the value of my IRA significantly
increases or decreases when I convert?
If the value goes up, the tax on conversion would have
been calculated on a lower value. This is just one of
the advantages of converting!
If the value goes down, you can “recharacterize” the
Roth IRA back to a Traditional IRA. This must be done
by the due date, including extensions, for filing your
income tax return.
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39. Roth IRA – FAQs
Does Congress have the ability to remove tax
advantages of the Roth IRA in the future?
Tax rules can be changed by Congress at any time.
However, “…outright reneging on the promise of tax-
free Roth withdrawals seems unlikely, at least without
some transition or grandfathering the rules. What‟s
more likely is that Congress will simply raise income
tax rates, putting the burden on wage earners and
retirees pulling money from regular IRAs and 401(k)s.”
-Source: Money Magazine “Retire Without Taxes” October 2008
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40. Roth IRA – FAQs
Is converting in 2010 right for you?
Contact your financial professional for more
information on the Roth IRA.
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41. Disclosure
This presentation was prepared by TransAmerica.
The opinions voiced in this material are for general information only and are not intended to provide
specific advice or recommendations for any individual. To determine which investment(s) may be
appropriate for you, consult your financial advisor prior to investing. All performance referenced is
historical and is no guarantee of future results. All indicies are unmanaged and cannot be invested
into directly.
Please consult your tax advisor for tax-related questions.
Tracking # 586018
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42. Questions & Answers
Thank you for attending!
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