The Key to Evaluating a Roth IRA Conversion Lies in Using The Right Personal Financial Planning Software

    PRINCETON, NJ, April 03, 2010 /24-7PressRelease/ -- For 2010 anyone who is considering rolling part or all of their conventional IRA into a Roth IRA should consider using a personal financial planning software like the recently released ExecPlan Express 2010. There are many variables such as time, tax rates and your retirement planning goals that will have an impact on whether an IRA Roth conversion makes sense. The first step to finding the right answer is to understand what the tax law provides. Individuals who do a Roth IRA conversions in 2010 can elect to defer the taxable income and split it over 2011 and 2012. This option has not been available in previous years and may or may not result in a measurable tax savings to consumers. At first glance this option provides two distinct benefits to doing a Roth conversion in 2010. First you will postpone your tax obligation until 2011 and 2012. This essentially provides an interest free loan on the income tax owed for up to two years. The second benefit is that since the income is "split" over two years, you will most likely face a lower tax liability than if taken all in one year. Assuming that the individual is not in the top income tax bracket, the "splitting" over two years allows less income from being pushed into a higher tax bracket which usually occurs if you take the income all in one year. And there lies the catch. The tax "rates" for the tax brackets for 2010 are significantly lower than the tax "rates" that are scheduled for 2011 and 2012. This means that by taking the income in 2011 and 2012 you may be in lower brackets than you would be if you took it all in 2010, but you actually may pay a higher tax rate and thus actually find yourself paying more in taxes.

To evaluate if you should take the tax all at once or split it over 2 years, you need to first determine if it even makes sense to do an IRA Roth conversion at all. For most individuals It may not be logical to convert to a Roth IRA now because they will most likely be earning less in retirement and thus be in a lower tax bracket when they begin to make their IRA distributions. The real benefit will only occur if they will be in the same or higher bracket in later years than now. Evaluating these scenarios cannot be done using simple Roth IRA conversion software. Though these retirement planning tools are usually free at most investment sites, they are unlikely to provide reasonably reliable or realistic answers, and as the saying goes, you get what you pay for. They serve the purpose of providing general answers to your financial questions and to induce you into exploring the financial planning website's other products and services The downside to these free Roth IRA conversion calculators or retirement planning software tools are that they are designed to do a simplistic analysis, one that does not reflect the progressive nature of our tax code or incorporate other income you may be earning that will impact your tax obligations from an IRA Roth conversion.

If you want to find an accurate solution you need to look at a personal financial planning software package that professional advisors use. A good personal finance software should focus on fundamental retirement planning projections that incorporate an actual federal and state income tax analysis with year by year cash flow projections of assets, income and expenses. It should allow the user the ability to specify how much to rollover and when, so as to see different "what If" scenarios. All of this is important because, even if it might make tax sense, the individual needs to have the funds to pay the income tax from the Roth IRA conversion. You cannot use part of the money from the Roth IRA conversion to pay the tax, thus many people find themselves with a big tax bill and not enough cash on hand to pay the tax man. A professional financial planning software like ExecPlan Express will not only allow you to determine if a Roth conversion makes sense from a tax and net worth point of view, but whether you can afford to do a Roth IRA conversion from a cash flow point of view.

In addition ExecPlan Express professional financial planning software will also provide you the ability to look at the other advantage to a Roth IRA, estate tax planning. For a lot of individuals, especially those in higher income tax brackets where a Roth IRA conversion may not make any sense from an income tax perspective, it may make sense for estate tax planning point of view. Assets in qualified plans are typically difficult to manage for estate planning, however liquid assets including Roth IRAs provide more options for future estate planning strategies. This makes professional financial planning software even more attractive than simple retirement calculators or Roth IRA calculators because it allows you to analyze other aspects of your financial profile. Most professional financial planning software packages Including ExecPlan Express Financial Planning Software provide limited time use copies for financial advisors to test drive. These limited use versions are usually sufficient for the non professional consumer to find the answer to whether a Roth IRA conversion will make sense. Consumers may also find these personal finance software tools helpful in exploring other tax, investment or retirement planning objective. Some of these packages are even priced within reach of consumers as well as professional advisors. ExecPlan Express is priced under $300, a point most consumers interested in taking more control of their personal finance will find quite affordable. You can obtain a free trial version from their website www.execplanexpress.com, they also provide sample reports, online support, and detailed tutorials to help walk you through using the software.

Sawhney Systems is a provided of comprehensive financial planning software for the professional financial advisor. For information on our products ExecPlan and ExecPlan Express please contact Robert Fourman CFP at (800) 850-8444.

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