1 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Presented by: Robert S. Keebler, CPA, MST, AEP (Distinguished) Planning Opportunities Created by Roth IRA Conversions

2 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Roth IRAs General Concepts > 100% of growth is tax-exempt > No required minimum distributions at age 70½ > NOTE: Distributions from Roth IRAs cannot be used to fulfill the RMD from a traditional IRA > $100,000 Modified Adjusted Gross Income (MAGI) limitation > RMDs on Inherited Roth IRAs > Roth 401(k) plans

3 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Starting in 2010, the $100,000 Modified Adjusted Gross Income (MAGI) limitation no longer applies > The taxable income recognized on a Roth IRA conversion in 2010 may be spread over the following two tax years (i.e and 2012) > Watch Out for the “Two Year Trap!” > Married Filing Separately taxpayers can convert to a Roth IRA Roth IRAs General Concepts

4 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Roth IRAs General Concepts

5 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Convertible accounts > Traditional IRAs > 401(k) plans > Profit sharing plans > 403(b) annuity plans > 457 plans > “Inherited” 401(k) plans (see Notice ) Roth IRAs General Concepts

6 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Non-convertible accounts > “Inherited” IRAs > Education IRAs Roth IRAs General Concepts

May be rolled into an IRA, Roth IRA, or other qualified plan (unless, possibly, it is a distribution that (1) is part of a series of equal payments and (2) did not include any 2009 RMD) Was the distribution a RMD for 2009? Was the RMD a single or multiple distribution? IRA or Qualified Plan Distribution Any distribution may be rolled into a Roth IRA or other qualified plan, however, only one distribution may be rolled into a traditional IRA. Rollovers Under Notice Yes No Multiple distribution(s) Single distribution Qualified Plan IRA 2, 3 1.A distribution that would have been an RMD for the year 2009, but for the suspension of RMDs under 401(a)(9(h) 2.Rollovers to Roth IRAs will be taxable 3.Roth conversions will be subject to the $100,000 AGI limitation, IRC §408A(c)(3)(B)(i) 4.One-rollover-per-year rule, IRC §408(d)(3) 5.One or more payments in a series of substantially equal distributions (that include the 2009 RMDs) made at least annually and expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancy) of the participant and the participant’s designated beneficiary or for a period of at least 100 years. © 2009 Robert S. Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP All Rights Reserved Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors. 4 Rollover Relief: The 60-day rollover period is extended so that it ends no earlier than November 30, 2009, for 2009 RMDs or payments that are part of a series of equal payments. Taxpayers have the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution. 5 1 Stop No Special Relief

8 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > When a traditional IRA has non-deductible contributions, a portion of the conversion to a Roth IRA will be non-taxable “basis” to the IRA owner > In determining the non-taxable portion of a Roth IRA conversion, all traditional IRAs and IRA distributions during the year (including outstanding rollovers) must be combined for apportioning “basis” > See IRS Form 8606 Roth IRAs Roth IRA Conversions – Calculation of Taxable Amount

9 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Roth IRAs Roth IRA Conversions – Calculation of Taxable Amount Basis Apportionment Factor - Example

10 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP The 5-year period for all of a participant’s Roth IRAs begins on January 1 of the first year for which a contribution was made to any Roth IRA owned by that participant. > Except a surviving spouse gets to treat an inherited Roth IRA as one of her own for purposes of the 5-year rule. > The 5-year period continues to run with the participant dies. NOTE: If a participant dies within the 5-year period, distributions to a beneficiary are taxable until the 5-year period ends. Roth IRAs General Concepts

11 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Qualified distributions are not subject to income tax > Non- qualified distributions will be subject to income tax Roth IRAs Taxation of Distributions

12 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Basis Can be Withdrawn Tax-Free (FIFO Method) > Distributions are not subject to income tax if they do not exceed aggregate contributions and/or conversions to the Roth IRA Roth IRAs Taxation of Distributions

13 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Roth IRA Distribution Rules Contributions > Regular contributions > Rollover contributions > Rollover from Roth 401(k)s Earnings Conversions (First in, first out basis) > Taxable portion of prior conversion > Non-taxable portion of prior conversion Step 1: (Non-taxable/not subject to 10% penalty) Step 2: (Non-taxable/potentially subject to 10% penalty) Step 3: (Taxable/potentially subject to 10% penalty)

Does the taxpayer meet any of the other statutory exceptions? Roth IRA Distribution Is the taxpayer over age 59½? Entire distribution is tax-free No Yes © 2009 Prepared by Robert S. Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP All Rights Reserved Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors. Yes No 3 1. IRC Sec. 408A(d)(2)(A)(i) 2. IRC Sec 408A(d)(2)(B) 3. IRC Sec. 408A(d)(2)(A)(ii)(iii)(iv) Death Disability First-time homebuyer expenses (up to $10K) 1 Has the taxpayer met the five-year holding period test? 2 No Yes Roth IRA-Taxability of Distributions STOP Distribution subject to income tax (only to the extent of amounts not previously taxed) STOP Distribution subject to income tax (only to the extent of amounts not previously taxed)

15 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Withdrawals made within five years of conversion if owner under age 59½ and no other exception applies > Five-year period independent of five-year period for qualified distribution Roth IRAs Taxation of Distributions Early Withdrawal Tax

16 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > If attributable to a regular contribution: applicable to amounts includible in gross income > If attributable to a rollover contribution: applicable to amounts that were included in gross income at rollover Roth IRAs Taxation of Distributions Early Withdrawal Tax for Non-Qualified Distributions

17 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > The calculation of the amount of a non-qualified Roth IRA distribution subject to the 10% early withdrawal tax is determined as follows: Gross non-qualified Roth IRA distribution -First-time homebuyer expenses -Prior year Roth IRA contributions Gross non-qualified Roth IRA distribution subject to 10% tax -Taxable portion of prior year Roth IRA conversions > 5 years -Non-taxable portion of prior year Roth IRA conversions Net non-qualified Roth IRA distribution subject to 10% tax Roth IRAs Roth IRA Distributions – 10% Early Withdrawal Tax Ordering Rule - General

Is the taxpayer over age 59½? Does the taxpayer have only contributory or conversion IRAs? Follow the “ordering rules” (as outlined in Form 8606 instructions) Roth IRA - Application of 10% Early Withdrawal Penalty Yes No Comingled Roth IRA Yes © 2009 Prepared by Robert S. Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP All Rights Reserved Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors. STOP No 10% Penalty (“Qualified distribution”) Did the distribution occur within five years of conversion? Is the distribution greater than prior contributions (i.e. “basis”)? Penalty only applies to earnings No 100% conversion Roth IRA 100% contributory Roth IRA STOP No 10% Penalty (return of non-deductible contributions) Penalty applies to prior conversion amounts and earnings 1 Penalty applies unless excluded under one of the following exceptions of IRC Sec. 72(t) 1.Death 2.Disability 3.Series of substantially equal periodic payments 4.Medical expenses greater than 7.5% AGI 5.Health insurance premiums for unemployed individuals 6.Higher education expenses 7.First-time homebuyer expenses (up to $10K) 1 Yes 1 Penalty only applies to earnings 1

19 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP (1) Taxpayers have special favorable tax attributes including charitable deduction carry-forwards, investment tax credits, high basis non-deductible traditional IRAs, etc. (2) Suspension of the minimum distribution rules at age 70½ provides a considerable advantage to the Roth IRA holder. (3) Taxpayers benefit from paying income tax before estate tax (when a Roth IRA election is made) compared to the income tax deduction obtained when a traditional IRA is subject to estate tax. Roth IRAs Nine Reasons Why to Convert to a Roth IRA

20 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP (4) Taxpayers who can pay the income tax on the IRA from non IRA funds benefit greatly from the Roth IRA because of the ability to enjoy greater tax-free yields. (5) Taxpayers who need to use IRA assets to fund their Unified Credit bypass trust are well advised to consider making a Roth IRA election for that portion of their overall IRA funds. (6) Future distributions to beneficiaries are generally tax- free. Roth IRAs Nine Reasons Why to Convert to a Roth IRA

21 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP (7) Because federal tax brackets are more favorable for married couples filing joint returns than for single individuals, Roth IRA distributions won’t cause an increase in tax rates for the surviving spouse when one spouse is deceased because the distributions are tax-free. >Important pre-mortem planning opportunity (8) Suspension of required minimum distributions (RMDs) provides for additional tax-free compounded growth (9) Ability to recharacterize a Roth IRA conversion is a significant tactical advantage because if provides the taxpayer the benefit of 20/20 hindsight (by allowing the taxpayer to specifically choose which conversions to keep) Roth IRAs Nine Reasons Why to Convert to a Roth IRA

22 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Roth IRAs Advantage of Paying Income Tax on a Roth IRA Conversion Before Incurring an Estate Tax PROOF: ($2,500,000 - $1,500,000) x 10% state estate tax = $100,000 NOTE: Under IRC §691(c), a deduction is allowed ONLY for federal estate taxes paid.

23 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Conversion PeriodRecharacterization Period 1/1/2009 – First day conversion can take place /31/2009 – Last day conversion can take place 4/15/2010 – Normal filing date for 2009 tax return 10/15/2010 – Latest filing date for 2009 tax return / last day to recharacterize 2009 Roth IRA conversion 12/31/ Roth IRAs Roth IRA Conversion Timeline

24 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > In 2009, the $100,000 AGI limitation is still in effect > For taxpayers who are below the $100,000 AGI threshold, serious consideration should be given to converting in 2009 because income tax rates are expected to increase as early as 2010 > For those taxpayers above the $100,000 AGI threshold, consideration should be given to harvesting losses (whether ordinary or capital) so as to lower income > Oil & gas investments > Defined Benefit Plans > Capital Loss Planning Roth IRAs Special Conversion Opportunity in 2009

25 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > In 2010, there will be a “tsunami” of income tax planning as a result of the repeal of the $100,000 AGI limitation on Roth IRA conversions > Consequently, planners need to begin now in gathering the necessary resources to handle the additional workload of analyzing Roth IRA conversions > Income tax and cash flow studies > Comprehensive Roth IRA conversion software > Comprehensive written materials explaining Roth IRA conversions and how a conversion will affect the client Roth IRAs Readying for the Conversion Planning “Tsunami” in 2010

26 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning

27 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mechanics In simplest terms, a traditional IRA will produce the same after-tax result as a Roth IRA provided that: > The annual growth rates are the same > The tax rate in the conversion year is the same as the tax rate during the withdrawal years (i.e. A x B x C = D; A x C x B = D)

28 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mechanics

29 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Critical decision factors > Tax rate differential (year of conversion vs. withdrawal years) > Use of “outside funds” to pay the income tax liability > Need for IRA funds to meet annual living expenses > Time horizon Advanced Roth IRA Planning Understanding the Mechanics

30 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP The key to successful Roth IRA conversions is to keep as much of the conversion income as possible in the current marginal tax bracket > However, there are times when it may make sense to convert more and go into higher tax brackets Advanced Roth IRA Planning Understanding the Mechanics Tax Rate Differential

31 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Single Married Filing Jointly Head of Household 10%$8,350$16,700$11,950 15%$33,950$67,900$45,500 25%$82,250$137,050$117,450 28%$171,550$208,850$190,200 33%$372,950 35%> $372, Tax Brackets Advanced Roth IRA Planning Understanding the Mechanics Tax Rate Differential

32 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP 10% tax bracket 15% tax bracket 25% tax bracket 28% tax bracket 33% tax bracket 35% tax bracket Current taxable income Target Roth IRA conversion amount Optimum Roth IRA conversion amount Advanced Roth IRA Planning Understanding the Mechanics Tax Rate Differential

33 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mathematical Mechanics Tax Rate Differential – Example #1 (50 Year Old)

34 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mathematical Mechanics Tax Rate Differential – Example #2 (50 Year Old)

35 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mathematical Mechanics Tax Rate Differential – Example #3 (50 Year Old)

36 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mathematical Mechanics Tax Rate Differential – Example #4 (70 Year Old)

37 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mathematical Mechanics Tax Rate Differential – Example #5 (70 Year Old)

38 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mathematical Mechanics Tax Rate Differential – Example #6 (70 Year Old)

39 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Understanding the Mathematical Mechanics Tax Rate Differential – Example #7 (70 Year Old)

40 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Tactical Considerations > Unused charitable contribution carryovers > Current year ordinary losses > Net Operating Loss (NOL) carryovers from prior years > Alternative Minimum Tax (AMT) > Credit carryovers

41 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Taxpayers may “recharacterize” (i.e. undo) the Roth IRA conversion in current year or by the filing date of the current year’s tax return > Recharacterization can take place as late as 10/15 in the year following the year of conversion Taxpayers may choose to “reconvert” their recharacterization > Reconversion may only take place at the later of the following two dates: (1) The tax year following the original conversion OR (2) 30 days after the recharacterization Advanced Roth IRA Planning Tactical Considerations

Interest Income - Taxable Capital Gain Income -Preferential Rate -Deferral until sale Roth IRA and Insurance - Tax Free Growth/ Benefits Real Estate, Oil & Gas and Tax Exempt Bonds - Tax Preferences Pension and IRA Income - Tax Deferred Money market Corporate bonds US Treasury bonds Attributes Annual income tax on interest Taxed at highest marginal rates Equity Securities Attributes Deferral until sale Reduced capital gains rate Step-up basis at death Real Estate Depreciation tax shield 1031 exchanges Deferral on growth until sale Oil & Gas Large up front IDC deductions Depletion allowances Pension plans Profit sharing plans Annuities Attributes Growth during lifetime RMD for IRA and qualified plans No step-up Roth IRA Tax-free growth during lifetime No 70½ RMD Tax-free distributions out to beneficiaries life expectancy Life Insurance Tax-deferred growth Tax-exempt payout at death TAX ASSET CLASSES Dividend Income Tax Exempt Interest Equity securities Attributes Qualified dividends at LTCG rate Return of capital dividend Capital gain dividends Bonds issued by State and local Governmental entities Attributes Federal tax exempt State tax exempt © 2009 Prepared by Robert S. Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP All Rights Reserved Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors.

43 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Taxpayers cannot recharacterize a portion of a Roth conversion by “cherry picking” only those stocks that decline in value (IRS Notice ) > All gains and losses to the entire Roth IRA, regardless of the actual stock or fund re-characterized, must be pro-rated Advanced Roth IRA Planning Tactical Considerations “Anti-Cherry Picking” Rule

44 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP On January 2, 2009, when John Smith’s IRA was worth $500,000, he converted the entire amount to a Roth IRA. John will owe ordinary income tax on the entire $500,000. The IRA consisted of ABC Fund ($250,000) and XYZ Fund ($250,000). As of April 15, 2010, ABC Fund had declined in value to $100,000, while XYZ Fund had increased in value to $300,000. Thus, the total value of the IRA account declined in value to $400,000. Even though John would like to re-characterize all of ABC Fund and leave XYZ fund in his Roth IRA, he must allocate the total loss to each fund pro-ratably. Therefore, John may only recharacterize $125,000 (25% x $500,000) of the original conversion amount instead of $250,000, resulting in taxable income of $375,000 ($500,000 - $125,000). Advanced Roth IRA Planning Tactical Considerations “Anti-Cherry Picking” Rule - Example

45 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Traditional IRA ABC Fund: $250,000 XYZ Fund: $250,000 Traditional IRA #1 ABC Fund: $250,000 Traditional IRA #2 XYZ Fund: $250,000 Advanced Roth IRA Planning Tactical Considerations Roth IRA Conversion Segregation Strategy STEP 1: Create separate IRAs for each asset, asset class or investment sector

46 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Traditional IRA #1 ABC Fund: $250,000 Roth IRA #2 XYZ Fund: $250,000 Advanced Roth IRA Planning Tactical Considerations Roth IRA Conversion Segregation Strategy STEP 2: Convert IRAs to separate Roth IRAs Roth IRA #1 ABC Fund: $250,000 Traditional IRA #2 XYZ Fund: $250,000

47 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP IRS Taxpayer Income tax liability due on $500,000 conversion amount April 15, 2010* * NOTE: Either a tax return or an extension must be filed by this date. Regardless of what is chosen, the tax liability due on the Roth IRA conversion must be remitted by this date in order to avoid late payment penalties and interest. Advanced Roth IRA Planning Tactical Considerations Roth IRA Conversion Segregation Strategy STEP 3: Pay income tax on Roth IRA conversion

48 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Roth IRA #1 ABC Fund: $100,000 (Current Value) Roth IRA #2 XYZ Fund: $300,000 (Current Value) Traditional IRA #1 ABC Fund: $100,000 (Current Value) Recharacterization of IRA using the value at the date of conversion (e.g. $250,000) October 15, 2010* * NOTE: October 15, 2010 is the latest date for which a 2009 recharacterization can take place (either by filing extensions or by filing an amended return). Advanced Roth IRA Planning Tactical Considerations Roth IRA Conversion Segregation Strategy STEP 4: Recharacterize Roth IRA conversion

49 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP October 15, 2010 Refund of overpayment on recharacterization of Roth IRA conversion Advanced Roth IRA Planning Tactical Considerations Roth IRA Conversion Segregation Strategy STEP 4: File (or amend) income tax return claiming refund for recharacterization Taxpayer IRS

50 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Using the facts from the earlier Example, instead of converting his entire IRA into a single Roth IRA, John created two separate Roth IRAs, one for each fund. As of April 15, 2010, ABC Fund had declined in value to $100,000 while XYZ Fund had increased in value to $300,000. As a result of the poor performance of ABC Fund, John chose to recharacterize the Roth IRA that held ABC Fund before he filed his income tax return. The tax savings from John’s Roth IRA Segregated Conversion Strategy can be summarized on the following slide: Advanced Roth IRA Planning Tactical Considerations Roth IRA Conversion Segregation Strategy - Example

51 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Advanced Roth IRA Planning Tactical Considerations Roth IRA Conversion Segregation Strategy - Example

52 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Recharacterization – Comprehensive Example 1/1/10Action11/30/10Action1/1/11Action4/15/11Action10/15/11Action11/30/11Action1/1/12Action A$100,000Original Conversion 1/1/10 $125,000Hold$130,000Hold$130,000Hold$135,000Hold$130,000N/A$130,000N/A B$100,000Original Conversion 1/1/10 $120,000Hold$120,000Hold$120,000Hold$120,000Hold$125,000N/A$130,000N/A C$100,000Original Conversion 1/1/10 $100,000Hold$100,000Hold$95,000Recharacterize 4/15/11 $80,000Reconvert 5/16/11 $85,000Hold$90,000Hold D$100,000Original Conversion 1/1/10 $ 75,000Recharacterize 11/30/10 $80,000Reconvert 1/1/11 $85,000Hold$85,000Hold$90,000Hold$95,000Hold E$100,000Original Conversion 1/1/10 $ 75,000Recharacterize 11/30/10 $90,000Reconvert 1/1/11 $85,000Hold$90,000Hold$75,000Recharacterize 11/30/11 $80,000Reconvert 1/1/12

53 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Other Roth IRA Planning Issues

54 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP CONVERSION OF INHERITED QUALIFIED PLAN > Notice – Section II, Q&A 7, allows non-spouse beneficiaries to convert inherited qualified plans to inherited Roth IRAs. > Plan must allow for such transfers. Other Roth IRA Planning Issues Recognizing Losses on Roth IRAs

55 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Taxpayers are generally allowed to deduct a loss on a Roth IRA in the year that the Roth IRA is fully liquidated > Loss is a miscellaneous itemized deduction subject to the 2% AGI floor > Deduction is an add-back for AMT purposes > In order to recognize the loss, the taxpayer must liquidate all Roth IRAs within the same tax year Other Roth IRA Planning Issues Recognizing Losses on Roth IRAs

56 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > 11 U.S.C. §522 > Retirement asset protection > IRA and Roth IRA limitations > $1 Million > Rollover IRA protection > Separate Accounts > Protection for Business Owners Other Roth IRA Planning Issues Bankruptcy/Creditor Protection 2005 Bankruptcy Act

57 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Several states have “opt out” provisions that replace the U.S.C. with state law protection > It is important to assess the level of protection each state law provides IRA owners to determine which set of laws (federal vs. state) to apply in a particular case Other Roth IRA Planning Issues Bankruptcy/Creditor Protection

58 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Qualified Plan Traditional IRA Roth IRA Bankruptcy and creditor protection may be lost as a result of the following series of transactions Other Roth IRA Planning Issues Bankruptcy/Creditor Protection

59 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP > Basic analysis > Used as a general illustration to show the overall benefits of converting to a Roth IRA > Usually only incorporates one to two factors > Tax rate difference > Growth rate difference > Income tax-free distributions after death > Comprehensive analysis > Used to determine “optimum” conversion amount > Multi-factorial > Need to run several models to determine sensitivity points Other Roth IRA Planning Issues Analyzing Roth IRA Conversions

60 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Conclusion

61 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. Although effort was taken to ensure the accuracy of these materials, Robert S. Keebler and Baker Tilly Virchow Krause, LLP assume no responsibility or liability for an individual’s reliance on these materials. These materials are being provided for educational and informational purposes only and are in no way to be construed as accounting, financial, tax, legal or other advice. Individual readers must consult their own professional tax and legal advisors.

62 © Robert S, Keebler, CPA, MST, AEP (Distinguished) Baker Tilly Virchow Krause, LLP To be added to our IRA update newsletter, please