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OwnerEdwin Lichtig IIIinventor
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A traditional IRA is first used to purchase an annuity, and then some months later, the traditional IRA is converted into a Roth IRA. Because of the penalty associated with the surrender of the annuity, the fair market value of the annuity transferred to the Roth IRA is discounted from the face value of the annuity, thus decreasing the federal income tax payable as a result of converting the traditional IRA to a Roth IRA. This method of doing business also contemplates the use of other assets similar in some ways to an annuity, such as long term real estate partnerships, that feature a long term surrender period, and an initial surrender penalty.
A method for converting a traditional IRA into a Roth IRA, comprising:
A method for converting a plurality of traditional IRA's to Roth IRA's, comprising
A method for converting a traditional IRA into a Roth IRA, comprising:
Dependencies are inferred from the claim text.
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Finance; Insurance; Tax strategies; Processing of corporate or income taxes: banking, e.g. interest calculation or account maintenance
Finance
Information and communication technology [ict] specially adapted for administrative, commercial, financial, managerial
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This invention relates, generally, to methods for enhancing a retirement account, and specifically, to methods for converting an IRA to a Roth IRA.
As is well-known in the art, qualified contributions to Traditional Individual Retirement Accounts (“IRA”) are typically made with before tax dollars and are quite often deductible from the Adjustable Gross Income (“AGI”) a given year. Distribution to the owner of the IRA are then taxed as ordinary income, with a ten percent (10%) penalty if the owner is less than {fraction (591/2)} years old.
Section 408 of the Internal Revenue Code created a Roth IRA commencing in 1997 which is funded with after tax dollars and which do not qualify as deductions from one's AGI. In sharp contrast with the traditional IRA, however, the distributions from the Roth IRA are never included in taxable income under the Internal Revenue Code, once the Roth IRA five (5) years holding period has expired.
FIG. 1 illustrates a flow chart of the steps according to the invention for converting a traditional IRA into a Roth IRA.
FIG. 2 is a characteristic comparison of leaving assets in a traditional IRA versus those transferred from an IRA to a Roth IRA.
FIG. 3 is a chart of the declining penalties of a typical annuity over time.
As an initial step for a qualified IRA owner having an Adjusted Gross Income of no more than $100,000, the owner of the traditional IRA should have the traditional IRA purchase a $100,000 annuity having, for example, a twenty percent (20%) first year surrender charge. Thus, if the surrender value of the annuity is only $80,000 during the first year, that is the fair market value of the converted account.
During the first month of the owner's tax year, typically, January, and typically several months after the annuity is purchased, the annuity is transferred to a Roth IRA account. The annuity is not surrendered. The ownership of the annuity is merely changed to the Roth IRA account.
By way of further example, assume the traditional IRA purchase, the annuity in April of 2002, and the traditional IRA transfers the annuity to a Roth account in January of 2003. This typically creates a tax which is not payable until Apr. 15, 2004, about two (2) years from the date of the annuity being purchased. This two (2) year delay thus allows the conversion tax to be deferred.