Good Time for Roth Rollover

With the value of most retirement accounts dropping, it might be a good time to consider rolling over into a Roth IRA.  Most retirement accounts let you take a deduction now, but you pay tax when you get the money out.  With a Roth, you pay the tax now, but you don’t have to pay taxes on the gains if you take it out after retirement age.

If you have a retirement account that was worth $10,000 and now it is only worth $5,000 you may be able to roll that over into a Roth and pay taxes on the $5,000 amount.  When the market comes back up, your money will grow tax free and you will pay only half of what you would have if you rolled it over a year ago when it was worth $10,000.

Not all accounts can be rolled over into a Roth, but most IRAs can.  Also if you have a 403b or 401k from a previous job where you no longer work, you may be able to roll it over into a Roth IRA.  The 401k or 403b from your current employer can’t be rolled over into a Roth under most circumstances.

Stimulus Benefits for Consumers

1. Deduct the taxes on a new vehicle -  The federal government will let you deduct the cost of state and local sales (or excise) taxes if you buy a new vehicle.  You are still probably better off buying a slightly used vehicle, but if you do buy new this can save you some money.
2. Get $8000 for buying a house - If you haven’t owned a house in the last 3 years the government will give you a credit up to $8,000.  If the house costs less than $80,000 you can get back 10%.  It also applies to homes built in 2009, but you have to move in before the end of the year. This isn’t a deduction that lowers your taxable income, it lowers the amount you pay in taxes by $8,000.  It is also refundable–if your tax bill is less than $8,000 you will get the remainder back in cash.
3. College tax credit – You can get a credit for up to $2,500 for paying college expenses.  This only helps you if you owe something in taxes.  The government won’t send you a check like they will with the $8,000 for buying a house.

Eggs in One Basket

One thing the recent failure of banks has taught people is not to keep all of your money in one place.  Obviously you want to make sure you divy your money up among different institutions to stay under the FDIC limit, but even if you are well under the limit, it is a good idea to keep some money in other places.

Usually when a bank fails the government goes to great pains to make it happen over a weekend so it can be back up and running on Monday.  However just because that is what they have done in the past doesn’t mean it will always continue to be that way in the future.  To be safe you should make sure you have enough money to live for a week or so in two different places.

This isn’t a huge risk, but a little thought ahead of time could minimize your inconvenience if a bank does happen to get seized during the middle of the week or if it take the government longer to reopen it than what they normally do.