Roth IRA sharks are on your tail
- February 12, 2010
- 6 comments
- Posted in Investing, Latest Posts, Retirement
Hang on to your wallet, here come the IRA sharks. An email just landed in my mailbox, blaring “ROTH CONVERSIONS ARE HOT! Millions of Dollars are Being Transferred! HUGE commissions are being generated!” Sucker lists are circulating. The next phone call or snail mail you get might be from a “financial adviser,” urging you to convert, right now, for a big IRA tax advantage, not to be repeated again. Hurry, hurry, get it while it lasts.
I hate these chiselers, these tin-pan greed machines. In my previous post, I talked about the 2010 Roth IRA conversion—who should do it and who should leave it alone. For most of you, it’s a good idea. But even so, hang up on any cold call. You don’t want “advice” from salespeople looking only for commissions.
What might they do? (1) They’ll tell you to sell everything in your old IRA (paying one set of commissions) and buy new investments for the Roth (paying a second set of commissions for products that will be highly priced). In fact, you don’t have to sell anything when you convert, you can carry over the investments you already have. (2) They might advise you to borrow against your house or an existing 401(k) to pay the income taxes due on the Roth conversion. Their pitch will make it sound like a super-clever use of resources, when in fact all it does is raise your indebtedness and add interest and fees to the transaction. Don’t fall for it!
If a Roth conversion makes sense—and again, see my previous post—find your own adviser. Or handle the transaction yourself, through your current mutual fund group. It couldn’t be easier. Just call the fund and tell it to switch some or all of your traditional IRA into a Roth.
Tags: Individual Retirement Account, IRA, Roth conversions, Roth IRA
Hi Jane – if I switch my current IRA to a Roth, do I have to pay all the taxes on it in one year?
For 2010 and 2011 only, you can spread the income (and the taxes) over two years. After that, all the taxes are due in the year you convert.
Dear Jane,
I worked at a state university in California for four years before moving back East. I know that I have some retirement savings accumulated from that time, and they are still in California. Should I transfer them to my present TIAA/CREF plan?
Thanks,
Margaret
I’m in favor of keeping things simple. If you can do a tax-free transfer, I’d do it
Jane,
I’m currently in a aggresive mutual fund with a $1.66 expense ratio. Is that to high a fee? This is a Roth IRA, would I be able to move it? Should I move it?
Thanks
An expense ratio would be a percentage, not a dollar amount. If you mean that you’re paying 1.66 percent of assets — well, that’s much too rich for me. I want to pay 0.5 percent or less.