Messages: What Members Are Asking On-Line

Roth IRA Conversion Spreadsheet

The following messages refer to the Spreadsheet Corner column in the First Quarter 2010 issue of Computerized Investing, which offered a spreadsheet to help investors guide their decision as to whether they should convert their traditional IRA to a Roth IRA.

Your Roth IRA Conversion article was of interest. As known, converting to a Roth IRA increases one’s adjusted gross income (AGI) for tax purposes. This is used by Medicare two years later to increase your premium for one year. The basic monthly premium is now $104 plus change. So, for a married couple, the annual tax-increased Medicare premium, based on your IRA-conversion-increased AGI, taken out of your Social Security can be $1,618 to $3,699 (more or less). So, for a few it may change your calculations and your decision to convert or not.

—E.N. via e-mail

I am already retired and discovered the taxation of Social Security benefits. Fifty percent (50%) of Social Security becomes taxable when total taxable income plus 50% of Social Security exceeds $32,000 for a couple. Let’s say half of Social Security is $12,000 plus an IRA withdrawal of $20,000 equals $32,000. Therefore, each additional dollar of IRA produces a taxable income increase of $1.50. At this income, the tax rate is 15%, for an effective tax rate of 22.5%. Worse, if taxable income plus half of Social Security exceeds $44,000, 85% of Social Security becomes taxable—so the next dollar from an IRA produces $1.85 of taxable income, for an effective tax rate of 27.75% (while still officially in the 15% tax bracket). The 2009 tax rate of 25% begins at $67,900, so many retirees are paying taxes at a much higher tax rate than the IRS booklet indicates.

—N.C. via E-mail

CI Editor Responds: I appreciate the responses I received from many of our readers. The spreadsheet I created was based on a T. Rowe Price Roth IRA Conversion Worksheet that is available at the T. Rowe Price Web site, which did not consider the impact of Medicare surcharges. As the letters above point out, the impact of Medicare premiums can be rather significant depending on your income at retirement.

These letters highlight something that perhaps I should have stressed more in the article—the spreadsheet is intended to be a guide but not a decision-making tool. When considering whether or not you should convert your traditional IRA to a Roth IRA, it is important to fully understand the implications of such a decision, in tandem with such issues as taxes and Medicare. For this reason, it is a good idea to consult with your financial advisor or accountant before making the ultimate decision.

Investment Account Manager Software

We received several responses to a reader’s complaints published in the First Quarter 2010 Messages column regarding bonds and tracking by CUSIP in Quant IX’s Investment Account Manager. One of the responses was from Matt Willms, president of Quant IX:

Investment Account Manager (IAM) does allow users to track their bonds and to use the CUSIP as the ticker symbol if they like. That way, as transactions are downloaded from the broker, they would be able to match up the broker activity with the bond CUSIP in IAM to properly track purchases, sales, and interest received automatically. Alternatively, if an IAM user wants to create or use a ticker symbol for a bond, that will work too. IAM allows users to “map” a broker CUSIP provided in the OFX file to the IAM bond symbol used for accurate transaction posting.

As for master limited partnerships (MLPs), these too can be tracked in IAM using the Other Investment category. Users again need to properly use the same ticker as provided in the broker OFX file or map to the one they create as opposed to the one in the broker OFX file. But MLPs are a more specialized investment and, depending on the sort of activity, might need to be entered manually since OFX files might not use a standard OFX code for activity.

In general, users of any software application should carefully review OFX data for accuracy, which can be incorrectly provided by brokers. We always encourage users to post activity in IAM while reviewing trade confirmations of activity or using month-end statements to verify accuracy.

CI Editor's Responds: Thank you very much, Matt, for this clarification!

MUTUALdecision Web Site

CI Editor Responds: Thank you for bringing this to our attention. The last year or two has been rough on many financial service providers, some of whom were been unable to weather the current economic storm. We hope to see things improve in 2010!