The Power of Roth
Revolutionized for 2010
This material is not intended to replace the advice of a qualified attorney, tax advisor,
investment professional or insurance agent. Before making any financial
commitment regarding the issues discussed here, consult with the appropriate
professional advisor.
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Roth IRAs in the News…
The Roth Conversion
-Wall Street Journal, December 29, 2009
5 Reasons to Convert to
a Roth IRA
-SmartMoney, September 15, 2009
New Rules Ease Roth Conversion,
but Benefits Vary
-NYTimes, January 9, 2010
You Can’t Take It with You,
but You Can Convert
-Barron’s, January 18, 2010
How Will You Pay for a
Roth Conversion?
Should You Roth?
-Time Magazine, January 8, 2010
-Business Week, October 22, 2009
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Agenda
The Roth Advantage
Converting to Roth in 2010
Roth and Preparing for the Future
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IRAs Can Provide Flexibility to Meet Multiple Objectives
Retirement
Planning
Estate
Planning
IRA
Investment
Planning
Tax
Planning
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Not All IRAs Are Created Equal
Traditional IRA and Roth IRA — what is the difference?
Feature
Maximum Annual Contribution
(50 or older)
Income Restrictions (2010
Modified AGI)
Who May Establish
Mandatory Withdrawals at 70½
(Required Minimum
Distributions—RMDs)
When do you pay taxes
Traditional IRA
Roth IRA
$5,000
$5,000
($6,000)
($6,000)
None
$120,000 (single)
$177,000 (joint)
Age limit 70 ½
No age limit
Yes
No (not for original
shareowner)
Tax-deferred growth
(taxes paid on
withdrawals)
Tax-free growth, Taxfree income1 (taxes
already paid on
contributions)
1A
qualified Roth distribution is a withdrawal from a Roth IRA account that has been established for at least 5 years AND the account holder is
59½, disabled or passed away.
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The Roth Advantage
Combine tax-free compounding growth with tax-free income
 Roth contributions made with “after-tax” dollars
 Contributions can be withdrawn tax-free — at anytime
 Earnings can be withdrawn tax and penalty-free when:
– Roth account established for 5 or more years
AND
– Attained 59½, death or disabled
Non-qualified distributions of earnings would be subject to income tax and, if made prior to
age 59½, may be subject to an additional 10% federal tax penalty.
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When Is Roth Beneficial?
Conventional wisdom is to pay taxes at the lowest rate
Expected Tax Rate in Retirement
Traditional IRA is
more beneficial
Roth IRA is
more beneficial
Higher

(Pay taxes today at the lower rate)
Same
Lower
(Pay taxes later at the lower rate)
Indifferent

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The Roth Advantage
Ways to invest in Roth IRA
 Contributions
– Up to $5,000 ($6,000 if age 50 or older)
– Income < $120,000 for single filers ($177,000
for married filing joint)
 Rollovers: Directly from 401(k), 403(b),
pensions, profit sharing plans, etc., to Roth
IRA
– If allowed by plan
– Became available with the passage of the
Pension Protection Act (PPA) of 2006
 Conversions: Change Traditional IRA to Roth
IRA
– No income or age limits
– Conversion may be full or partial
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Agenda
The Roth Advantage
Converting to Roth in 2010
Roth and Preparing for the Future
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Why Consider Roth Conversion Now?
Reasons to take another look at Roth
 Income limits on conversion lifted in 2010
 Tax rates scheduled to increase in 2011
– Recent stimulus bills may put further
pressure on future tax rates
 Spread tax liability
 Flexibility regardless of market conditions
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Roth Now Available to Everyone: Income Limits Lifted for Conversions
But income limits for Roth IRA contributions remain in effect
Before 2010
Modified Adjusted
Gross Income (AGI)*
limitation
Under $100,000
household income
Marital Status limitation
Married, filing
separately not
permitted
2010 and Beyond
No restrictions
No restrictions
*Modified Adjusted Gross Income. See IRS Publication 590 which contains a worksheet for determining MAGI for Roth conversion purposes.
Income limits for Roth contributions remain in effect and are $120,000 AGI for single filer; $177,000 AGI for married filing jointly
23285-02-0210| February 2010 | Page 12
Taxes for Conversions in 2010 — Choose When to Pay Your Taxes
Spreading taxes not available for conversions in 2011 and beyond
2010
Option A
Convert
anytime during
year
2011
2012
2013
Declare 100% of
taxable conversion
amount as income
on 2010 tax return
Due 4/15/11*
Option B
Convert
anytime during
year
Declare 50% of
taxable conversion
amount as income
on 2011 tax return
Declare 50% of
taxable conversion
amount as income
on 2012 tax return
Due 4/15/12*
Due 4/15/13*
*April 15th is the tax filing due date for most individuals. Check with your tax advisor if you are unsure.
23285-02-0210| February 2010 | Page 13
Making The Decision — Impact of Future Tax Rates
Tax rates scheduled to increase in 2011
Most tax brackets will see an increase of 10% or more in taxes
beginning in 2011
2010
2011
Highest
35%
39.6%
5th Bracket
33%
36%
4th Bracket
28%
31%
3rd Bracket
25%
28%
2nd Bracket
15%
15%
Lowest Bracket
10%
15%
23285-02-0210| February 2010 | Page 14
IRS Allows You to Undo (Recharacterize) the Conversion
Turn Roth IRA back to Traditional IRA without tax or penalty; can reconvert at later date
 Ability to “undo” conversion
(recharacterize) if market goes down
– Treats the conversion as if it never
happened
– “Undoes” the corresponding tax liability
– Recharacterize until October 15 of year
following the conversion
 “Redo” conversion (reconvert) at later of:
– January 1 of year following conversion
– If conversion happens after January of year
following conversion, can reconvert 30 days
after recharacterization
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Example: Recharacterization after Market Drop
Recharacterization allows you to undo a conversion if the market drops
Mary has a $100,000 Traditional IRA and is in 25% tax bracket
Traditional IRA account
value $100,000
Converts to Roth IRA
Will owe $25,000 in taxes
Traditional IRA account value
would have been $80,000
If Mary had
waited
6 months
to convert…
Would only owe $20,000 in taxes
Can Mary lower the tax bill on her conversion if her
Roth IRA account value is lower?
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“Undo” (Recharacterize) the Conversion
Undo conversion if market declines — can “redo” conversion later
Mary can “undo” her conversion if the market value drops
The steps are:

Recharacterize back to Traditional IRA (undo the
conversion)

This will restore the Traditional IRA with $80,000
(value of Traditional IRA on date of recharacterization)
– No taxes on the recharacterized amount
– No taxes on the initial conversion

Can “Redo” conversion at later date
* Recharacterization, or the ability to “undo” a conversion must take place by October 15th of the year following the conversion.
The later of 30 days must pass after recharacterization (or after January 1st of following year) before a new conversion can take
place.
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Agenda
The Roth Advantage
Converting to Roth in 2010
Roth and Preparing for the Future
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How Can Roth Help Prepare for the Future?
 Help maximize Social Security
benefits
 Provide flexibility in retirement income
 Create a greater legacy for future
generations
23285-02-0210| February 2010 | Page 19
Your Social Security Benefits
Roth IRA distributions may help maximize your Social Security Benefits
Did you know that Social Security Benefits may be taxed
if Adjusted Gross Income (AGI) exceeds certain
thresholds?
 $32,000 for married couples filing jointly
 $25,000 for single filers
Examples of income sources that would be included in
income calculations
 Employment or rental income
 Traditional IRA distributions
Qualified Roth IRA distributions1 are not included in
income calculations
1A
qualified Roth distribution is a withdrawal from a Roth IRA account that has been established for at least 5 years AND the account holder is
59½, disabled or passed away.
23285-02-0210| February 2010 | Page 20
What’s Your Retirement Income Strategy?
With Roth IRAs, you have access to tax-free income when you choose
 Traditional IRAs require that the account owner must begin taking
Required Minimum Distributions (RMDs) at age 70½
– Amount determined by age
– RMDs from Traditional IRAs are generally taxable
 RMDs are not required for Roth IRAs for the original account
owner and spouse*
– As a Roth IRA owner, you choose when withdrawals begin and how
much you want to take
– Don’t need to take withdrawals??—Pass it on!
*If surviving spouse assumes Roth IRA upon inheritance
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Building a Legacy
Roth IRA is one of the most tax-efficient assets you can leave your heirs
 No RMDs required, which can erode
inheritance
 Tax-free compounded growth over time
 Tax-free income for your heirs*
*A qualified Roth distribution is a withdrawal from a Roth IRA account that has been
established for at least 5 years AND the account holder is 59½, disabled or passed away.
23285-02-0210| February 2010 | Page 22
Case Study: Traditional IRA vs. Roth IRA — Impact of RMD on Legacy
Building
Husband and wife want to maximize legacy, avoid RMDs
 Father is 67 years old, Mother is 65 years old
 Son is currently 41 years old, granddaughter is currently 11 years old
 Father has a Traditional IRA worth $200,000
 Father and mother are in the 25% tax bracket
 They want to draw retirement income from other sources, will not need
RMD income
 Goal: Want to leave as much money to son as possible
Is it better for the father to convert to Roth IRA or stay with
Traditional IRA?
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Case Study: Traditional IRA vs. Roth IRA — Impact of RMD on
Legacy Building
Assume conversion taxes paid from Traditional IRA
 If father converts to the Roth IRA, he will pay $50,000 in taxes
(25% x $200,000)
 Assuming he pays taxes from Traditional IRA, he starts the Roth IRA
with $150,000
 Additional Assumptions
– Tax rate remains at 25% across all lives
– Assumed annual growth rate is 6% across all lives
Note: It is usually most advantageous to pay taxes from outside sources. This example illustrates the worst case scenario of using your
Traditional IRA to pay taxes on the conversion. Please consult a qualified tax advisor.
23285-02-0210| February 2010 | Page 24
Case Study: Traditional IRA vs Roth IRA — Impact of RMD on Legacy Building
RMD in Traditional IRA works against father’s legacy goal
Father’s beginning
account value
Traditional IRA
Roth IRA
$200,000 pre-tax
$150,000 after-tax
Number of years of 6 years
RMD
(father’s life)
None
Total RMDs during
his lifetime
$42,000 after-tax
None
Account value at
father’s death (age
75)
$250,000 pre-tax
$240,000 after-tax
RMD begins when father is 70½; readjusted each year based on his life expectancy
Assume 6% growth rate and 25% tax rate
23285-02-0210| February 2010 | Page 25
Case Study: Traditional IRA vs. Roth IRA—Impact of RMD on Legacy Building
RMD in Traditional IRA works against surviving spouse’s legacy goal
Traditional IRA
Roth IRA
Wife’s beginning
account value (age 73)
$250,000 pre-tax
$240,000 after-tax
Number of years of
RMD (mother’s life)
9
None
Total RMDs during her
lifetime
$85,000 after-tax
None
Account value at
mother’s death
(age 81)
$270,000 pre-tax
$405,000 after-tax
Wife does not cash out IRA. She assumes the IRA as her own and continues RMDs based on her life expectancy (not her husband’s).
RMDs are readjusted each year based on her life expectancy.
Assume 6% growth rate and 25% tax rate
23285-02-0210| February 2010 | Page 26
Case Study: Traditional IRA vs Roth IRA — Impact on RMD on
Legacy Building
Son begins “Stretch”; Roth IRA generates substantial legacy advantage over
Traditional IRA
Traditional IRA
Roth IRA
Son’s beginning
account value (age
59)
$270,000 pre-tax
$405,000 after-tax
Number of years of
RMD (son’s life)
20
20
Total RMDs during
his lifetime
$285,000 after-tax
$570,000 after-tax
Account value at
son’s death (age 78)
$205,000 pre-tax
$300,000 after-tax
Initial RMD based on son’s life expectancy; future RMDs adjusted by a factor of one each year.
Assume 6% growth rate and 25% tax rate
23285-02-0210| February 2010 | Page 27
Case Study: Traditional IRA vs. Roth IRA — Impact on RMD
Legacy Building
Roth continues to provide Granddaughter nearly double the after-tax income
Traditional IRA
Roth IRA
Granddaughter’s beginning
account value (age 48)
$205,000 pre-tax
$300,000 after-tax
Number of years of continued
RMD payments (based on son’s –
her father’s- life expectancy)
6
6
Total RMDs during her lifetime
$180,000 aftertax*
$350,000 after-tax
Initial RMD based on son’s life expectancy; future RMDs adjusted by a factor of one each year.
Granddaughter takes over RMDs based on her father’s life expectancy; forced to cash out after year 6. Granddaughter’s age doesn’t factor
into this example.
Assume 6% growth rate and 25% tax rate
* Pre-tax distributions were $235,000
23285-02-0210| February 2010 | Page 28
Case Study: Traditional IRA vs. Roth IRA — Impact of RMD on Legacy
Building
Roth provides more after-tax income to heirs
Son
Granddaughter
$1,000,000
$920,000
$800,000
$350,000
$600,000
$465,000
$400,000
$180,000
$570,000
$200,000
$285,000
$0
Traditional IRA (after-tax)
Roth IRA
Assumptions: 6% assumed growth rate, 25% taxes across all lives;
RMD for Traditional IRA begins with the parent’s lives; RMD for Roth IRA begins when the beneficiary inherits the account. The RMD during
the parents’ lives on the Traditional IRA plays a large role in reducing the account balance that the heirs inherit.
23285-02-0210| February 2010 | Page 29
Case Study: Traditional IRA Stretch vs. Roth IRA Stretch – Cumulative Taxes
Roth IRA may provide multi-generational tax optimization
Father's Life
$200,000
Mother's Life
Son's Life
Granddaughter's Life
$198,000
$60,000
$150,000
$156,000
$100,000
$96,000
$50,000
$50,000
$28,000
$0
$50,000
$14,000
Traditional IRA
Roth IRA
Assumptions: 6% assumed growth rate, 25% taxes across all lives;
RMD for Traditional IRA begins with the parent’s lives; RMD for Roth IRA begins when the beneficiary inherits the account. The RMD during
the parents’ lives on the Traditional IRA plays a large role in reducing the account balance that the heirs inherit.
23285-02-0210| February 2010 | Page 30
Tax Considerations
Avoid unexpected taxes for conversions
 Conversion may bring you up and
over your next tax bracket
 10% early withdrawal penalty
– Waived on converted assets
– Not waived on amounts taken from
Traditional IRA to pay conversion
taxes
 State tax considerations
 Conversion must be completed by end of calendar year (unlike
contributions which can be made until April 15)
 Conversion may be full or partial
Convergent Retirement Plan Solutions, LLC©
23285-02-0210| February 2010 | Page 31
Is a Roth Conversion Right for You?
Talk to your financial advisor
Questions
???
23285-02-0210| February 2010 | Page 32
Investment Suitability Is Important
Neither Pioneer, nor its representatives are legal or tax advisors. In
addition, Pioneer does not provide advice or recommendations. The
investments you choose should correspond to your financial needs, goals,
and risk tolerance. For assistance in determining your financial situation,
please consult an investment professional.
Before investing, consider the product’s investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments
for a prospectus containing this information. Read it carefully.
Securities offered through Pioneer Funds Distributor, Inc.
Underwriter of Pioneer mutual funds, Member SIPC
60 State Street
Boston, Massachusetts
www.pioneerinvestments.com
2010 Pioneer Investments
23285-02-0210| February 2010 | Page 33
About Pioneer
 Founded in 1928
 Pioneer Fund - Third oldest mutual fund
 Diversified fund family including Pioneer Ibbotson
Asset Allocation Series
 Serve over 1 million shareholders
23285-02-0210| February 2010 | Page 34
Appendix
23285-02-0210| February 2010 | Page 36
Over Half of Traditional IRA Contributions Are Nondeductible
Nondeductible Contributions Impact Taxable Amount of Roth Conversions
 Traditional IRA may consist of:
– Tax-deferred earnings
– Previously deducted contributions
• Available when income below $56,000 for single filers, $89,000 for married couples
filing jointly
• Received income tax deduction for contributions
• Owe income taxes on withdrawals or conversions
– Nondeductible contributions
• Required when income exceeds $56,000 for single filers, $89,000 for married couples
filing jointly
• Did not receive income tax deduction for contributions
• Do not owe income taxes on contributions when withdrawn or converted
For a full discussion of nondeductible contributions please see Publication 590.
Source: Accumulation and Distribution of Individual Retirement Arrangements, 2004 ; IRS Statistics of Income Bulletin, Spring 2008
23285-02-0210| February 2010 | Page 37
Conversion with Nondeductible IRA Contributions
IRS Considers All of a Client’s Traditional IRAs to Be “One Big IRA”
 All withdrawals and conversions represent proportionate share
of tax-deferred earnings, previously deducted contributions
and nondeductible contributions
 % of conversion that is non-taxable is:
Total non-deductible contributions
Total December 31 balance all
Traditional, SEP or SIMPLE IRAs in
year of conversion
x amount converted
A nondeductible contribution is a contribution to a Traditional IRA that does not qualify for tax deductions. Assuming the client or spouse participates in
an employer’s retirement plan, the 2010 deduction for traditional IRA contributions begin to phase out at $56,000 for single filers, $89,000 for married
couples filing jointly.
23285-02-0210| February 2010 | Page 38
Case Study: Conversion with Non-Deductible Contributions
Calculating Conversion Taxes When Nondeductible Contributions
Are Comingled
 John has $30,000 Traditional IRA
– $25,000 is nondeductible contributions
– $5,000 is earnings
 If he converts, what amount will he owe taxes on?
A nondeductible contribution is a contribution to a Traditional IRA that does not qualify for tax deductions. Assuming the client or spouse participates in
an employer’s retirement plan, the 2010 deduction for traditional IRA contributions begin to phase out at $56,000 for single filers, $89,000 for married
couples filing jointly.
23285-02-0210| February 2010 | Page 39
Case Study: Conversion with Non-Deductible Contributions
Pro-Rata Rule Used to Calculate Conversion Taxes
$30,000 Traditional IRA
Earnings
NonDeductible
Contributions
$5,000
(17% of IRA)
$25,000
(83% of IRA)
Of the $30,000 that is converted, John will only pay taxes on $5,000
Assumes John only has Traditional IRA
23285-02-0210| February 2010 | Page 40
Case Study: Conversion with Rollover & Non-Deductible Contributions
Rollovers Dilute Tax-free Benefits of Converting Non-Deductible Contributions
 Assume John will be retiring or changing jobs in the
next year
 401(k) balance on December 31 is $220,000
 John also has the Traditional IRA from the previous example worth
$30,000
– $25,000 consists of non-deductible contributions
 John wants to convert $30,000
 John converts after the rollover, what will be the tax consequence?
23285-02-0210| February 2010 | Page 41
Non-Deductible Contributions Effect Taxable Portion of Conversion
Step 1: Determine non-deductible portion of Traditional IRA
$250,000 Traditional IRA
$220,000 Rollover from 401(k)
$30,000 from prior IRA
Rollovers
and
Earnings
NonDeductible
Contributions
$225,000
(90% of IRA)
$25,000
(10% of IRA)
90% of Traditional IRA is pre-tax
Assumes client only has Traditional IRA
23285-02-0210| February 2010 | Page 42
Non-Deductible Contributions Lower the Taxes Owed on Conversion
Step 2: Pre-tax portion is same percent as taxable portion of conversion
90% of IRA is pre-tax
$30,000 Partial Roth Conversion
Taxable
$27,000
(90% of conversion)
Non-Taxable
$3,000
(10% of conversion)
Of the $30,000 that is converted, now John pays taxes on $27,000
23285-02-0210| February 2010 | Page 43
Case Study: Conversion with Rollover & Non-Deductible Contribution
Case Study Takeaway: tax cost of conversion increases if John
converts after a rollover
 If John converts before the rollover, he pays taxes on $5,000
Total taxes based on 25% tax rate = $1,250
 If John converts after the rollover, he pays taxes on $27,000
Total taxes based on 25% tax rate = $6,750
23285-02-0210| February 2010 | Page 44
Case Study: Conversion with Non-Deductible Contributions
Goal: Careful Preparation Can Reduce Conversion Taxes
Reduce taxable amount of conversion by:
 Waiting to roll over retirement plans from former employers until
year after conversion
 If rollover already occurred, roll back to employer sponsored
retirement plan, if permitted, by December 31 in year of conversion
23285-02-0210| February 2010 | Page 45
Form 8606 Should be Filed for Non-deductible Contributions
Form 8606: Instructions to Calculate Taxable Conversion Amount
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