The issues aren’t quite the same as those one faces when considering the deepest aspects of personal faith and religious doctrine, but a “Roth conversion” can pose some difficult issues for investors nonetheless. And we’re going to hear much more about this going forward because of a scheduled change in the law: Unless something unexpected happens in D.C., come 2010 there will no longer be income limits on Roth IRA conversions.
There will be a lot written on the issue of whether one should convert or not, as well as endless articles describing all kinds of “strategies” to potentially leverage the change (some legitimate and others more questionable). For me, three things are important in considering this kind of “conversion”:
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We’re coming to the close of 2009. It’s been an eventful year, a year of change, and over the next few weeks you’ll be seeing a lot of articles putting it all in perspective.
It’s also the close of the tax year, and year-end planning should be commanding some of your attention. One of the few tools not blunted by this soured economy is tax-loss harvesting—a strategy that can shelter income and reduce portfolio risk. And one might say this has been a banner year for tax losses.
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Jeremy Siegel has a recent piece in the Financial Times that restates his view that stocks are the most appropriate investment for investors with a long horizon. I wonder how most of you look at this issue, especially after the recent market gyrations.
Are you still listening to Professor Siegel, or did you shred his book along with your fund statements from last year? I’d love to know how many of you agree with that view, and if your investment strategy reflects it.
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You see it all too often: A caretaker is arrested for stealing funds from a senior under his or her care. What you don’t see as frequently—though I believe it’s a great deal more prevalent—is family financial fraud, primarily targeting seniors. It generally takes the form of identity theft and account takeovers. It often involves close family members, in-laws, and friends, and it can leave seniors virtually destitute.
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How does your ability to make financial decisions change over time?
One research study suggests that, across the population, financial skill follows a hump-shaped pattern. In our youth, we start with low levels of financial knowledge. Over time, our ability grows through experience. However, as we age, our cognitive faculties begin to decline. Over time, the decline in ability outpaces the growth in experience, and as a result our net ability falls. Hence the idea of a hump-shaped curve: from a low in youth, to a peak in middle age, to a slope downward in our older years.
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