Financial Planning for Women
November 11, 2009
Jean Lown Ph.D. & Diana Burk, M.S. student
New Developments @ FPW
 Survey has been approved by USU IRB
 You will receive an email inviting you to respond
 Incentives: drawing for free consultation with Suzanne
Dalebout at Polaris Financial Planning in SLC
 Thanks to Diana FPW newsletter has a new look
 FPW has a blog! http://fpwusu.blogspot.com/
 Find us on Facebook: Become a fan of FPW
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Overview
 Why you may need to invest more
 IRA overview
 Traditional vs. Roth
 Should you convert a traditional IRA or a workplace
plan to a Roth?
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Life expectancy in the West
U.S. Census Bureau, Steve Baker
The Salt Lake Tribune
August 3, 2006 A6
Calculate your longevity: Module 1B
http://www.ces.purdue.edu/retirement/
Source: National Center for Health Statistics, Vital Statistics of the United States, Decennial Life Tables;
Governor’s Office of Planning and Budget, Steve Baker/ The Salt Lake Tribune, August 3, 2006 A6
National Retirement Risk Index
Center for Retirement Research @ Boston College
 NRRI measures % of households who are ‘at
risk’ of being unable to maintain preretirement level of living in retirement
 2004 NRRI: 43% at risk
 After crash: households ‘at risk’ rose to 51%
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Health Expenses
 have risen faster than inflation for > 20 years
 Medicare will not cover all costs
 2009 Medicare part B $96.40/mo.
 will continue to rise
 a women retiring at age 65 in 2009 will need $98,000–
$242,000 in savings to cover health insurance
premiums & out-of-pocket expenses in retirement for
a 50–50 chance of having enough money.
 $164,000–$450,000 for a 90% chance
 Source: Employee Benefit Research Institute
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Long Term Care Expenses
 Home health care aides
 $21/hour x 24 hours = $504/day x 365 = $183,960
 Assisted living
 $37,572 annually
 40% of today’s seniors will spend time in
nursing home
 $79,935 /yr. for private room
 $72,270 for semi-private
 The 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day
Services, and Home Care Costs, October 2009.
http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-marketsurvey-nursing-home-assisted-living.pdf
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Will you have enough $?
 to increase likelihood you won’t outlive your $
 to supplement Social Security & any workplace
plan
 Contribute to an Individual Retirement Account
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Investing in an IRA is the
first step to reaching your
retirement dreams!
What is an IRA?
 an individual, tax-sheltered account for retirement
 not an investment, but an account to hold
investments
 like a cookie jar or a candy wrapper
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IRA Investments
 almost any investment, from CDs to stocks
 Good choice is a target date retirement mutual fund
 Recommendations at: http://www.usu.edu/fpw
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Individual Retirement Accounts
 Tax-advantaged investing
 account is not taxed while it is growing
 When $ is withdrawn in retirement
 Traditional
IRA withdrawals are taxed
 Roth IRA withdrawals are tax-free
 Because
you paid taxes before funding
the Roth IRA
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Why Contribute?
 How long do you expect to live in retirement?
 Do you participate in an employer plan?
 Will you have enough money from Social Security &
employer plan to last for 3+ decades in retirement?
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Who Can Contribute?
 Any worker with earned income (no age limit)
 Spousal IRA for worker's non-earning spouse
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How Much Can You Contribute?
 Up to $5000 annually
 Start with as little as $100 in Schwab index
mutual fund
 $50/month in T. Rowe Price mutual funds
 Age 50 or older: $6000/year
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Traditional IRA
 Individual account
 You or spouse must be earning taxable income
 Contributions are tax deductible
 Growth is taxed when you withdraw
 Required Minimum Distributions after 70 ½
Roth IRA
 Eligibility to contribute in 2009
 Earn <$116,000/year if single
 $169,000 for joint filers
 Contributions are not tax deductible
 Withdrawals are tax-free after age 59 ½
 No Minimum Distribution Requirements
 No mandatory withdrawals
 Great tax break for wealthy to pass $ to heirs
Traditional vs. Roth IRA
 Contributions may be
tax-deductible
 Depends on income &
employer plan
 $ is taxed when
withdrawn at
retirement
 Must start withdrawals
at 70 ½
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 Contributions are not
tax-deductible
 $ is not taxed when
withdrawn at retirement
 No mandatory
withdrawals at 70 ½
 Can bequeath $ to heirs
Questions on IRAs?
 It’s not magic!
•http://www.cfp.net/enewsletter/November2008.html#1
Compiled from:
It’s Your Turn
CFP Board eNewsletter, November 2008
January 1, 2010
 Prior to 1/1/10 only individuals with a modified
adjusted gross income of <$100,000 could convert a
traditional IRA to a Roth
 As of 1/1/10 anyone with a Traditional IRA can convert
to a Roth IRA
 Whenever you convert from traditional to Roth you
owe taxes
 If you convert in 2010 you can spread the tax burden
over 2 tax years: 2011 and 2012
 Future years: pay all tax in one year
Convert IRA & Workplace Assets
 Starting in 2010, you can convert Traditional IRAs and
eligible workplace plan account assets to Roth
IRAs, and for 2010 conversions only, spread the tax
cost of the conversion over two years.”
 Traditional IRAs (including Rollover IRAs), SEP-IRAs,
SAR-SEP IRAs, and SIMPLE IRAs are all eligible to be
converted to a Roth IRA
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Convert workplace plan, cont.
 Employer-sponsored plans , i.e., 401(k) or 403(b) plan
 that are eligible for distribution and rollover may be
converted
 for example, when you are no longer working for the
company sponsoring the plan
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To Switch or Not To Switch?
3 Factors to Consider
1. Marginal tax rate: highest rate at
which your income is taxed
2. Life expectancy
3. Can I afford to pay the taxes on
amount converted from non-IRA
funds?
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Taxes in Retirement
 All your 401(k), 403(b), 457 defined contribution plan
funds will be taxable when you withdraw $
 Defined benefit pensions will be taxable
 Up to ½ of Social Security benefits will be taxable if
 Married, joint, income of $32,000 or more
 Single w/ income of $25,000+


These $ amounts of SS are NOT indexed to inflation
Most middle & all upper income retirees will owe income
taxes on SS benefits
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Future Tax Rates?
 How many think tax rates will be lower in future?
 Massive federal deficits = higher taxes
 What is your Marginal Tax Bracket?
 Highest rate at which your income is taxed

10%, 15%, 25%, 28%, 33%, or 35%
 http://www.rce.rutgers.edu/money/taxinfo/marginalt
axbrackets2009.asp
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Marginal Tax Rates
 Married filing jointly
 Taxable income $16,701 to $67,900


15% marginal tax rate
Owe $15 on every $100 in this range
 Income of $67,901 to $137,050


25% MTR
Owe $25 on every $100
 If you need $75,000 to live on… wouldn’t it be nice to
take the $7,100 from your Roth & pay $0 tax rather than
pay .25 x $7,100 = $1,775 in federal income taxes?
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Should I Convert?
 Paying Uncle Sam
 If you decide to convert a traditional (untaxed) IRA to a
Roth IRA, whatever funds you convert will be taxed at
your MTR
 If you have “other money” to pay the tax bill, then all of
your IRA funds will continue to grow.
 If you’re under 59 ½, you can’t use the money in your
Traditional IRA without incurring a penalty in addition
to paying the conversion taxes
 Don’t use IRA $ to pay conversion taxes!
Example 1
 $10,000 in a traditional (untaxed) IRA
 If marginal tax rate is 15%
 owe $1,500 in federal income taxes
 You can spread the tax over 2 years

Pay ½ in 2011; ½ in 2012
 Aren’t you glad the value of your IRA shrunk with the
market crash? 
 Convert in January 2010 before market rebounds further
 If you wait, the value will increase & you’ll owe more taxes
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Example 2
 Your traditional IRA is worth $50,000
 You can’t afford to pay all those taxes, even spread over
2 years
 OR, if you convert a large amount, the additional
taxable income will push you into a higher tax bracket
 i.e. from 15% to 25%
 Convert a portion of your traditional IRA to a Roth
 It’s not an all or nothing deal
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Why convert in 2010?
 Spread tax payment over two years rather than one
year
 Only in 2010
 Conversions after 2010
 Pay all tax due in one year
 Value of traditional IRA may rebound
 Convert while value is low
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Questions?
 For more details on tax implications of a Roth
conversion, consult your financial advisor or
accountant
 Mutual fund websites
 Fidelity, Vanguard, T. Rowe Price, TIAA-CREF
Financial Planning for Women
 Please respond to FPW
survey!
 December- No program
 HAPPY HOLIDAYS!!!
 January 13, 2010
 Bring a friend
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