Year-end is fast approaching, and based on web traffic it seems like the question of converting traditional IRA savings to Roth savings looms large. Congress has added to the buzz by allowing the conversion of certain pre-tax 401(k) money into Roth money (though few plans will offer this option in 2010).
Before you jump on the conversion bandwagon, I want to raise a critical question: What if tax rates don’t go up?
We at Vanguard educate, cajole, and opine everywhere on the importance of keeping your investment portfolio diversified and matched closely with your risk profile. We should be saying more about just where you’re keeping those investments.
In June 1997, Chicago Tribune writer Mary Schmich penned a now-famous column titled “Advice, like youth, probably just wasted on the young.” In short, the column served as the speech that Ms. Schmich would give if she were asked to make a commencement address. The following year, the column went viral, if you will, in the form of the music single “Everybody’s Free (To Wear Sunscreen).”
Do you have a tax refund coming? Some would say it means you over-withheld and should have paid less last year. Others look at it as a non-interest-bearing savings account. I’d look at it as an opportunity to improve your financial picture and prepare for the next inevitable downturn—whether it happens next week, next month, or five years from now.
Another tax filing season has come to an end. You might have used an online service like TurboTax, enlisted the aid of a tax professional, or, as some of us still do, used paper and pencil and good old-fashioned arithmetic.
So, where is your 2009 tax information right now? Has it made its way to the basement to reside with returns from previous years? Did you store it on a secure data server? While keeping your old tax records organized is admirable, learning from them is even better. That’s why I encourage you to take another look at your 2009 return to see what might be gleaned from it—and maybe start making decisions that could benefit you in 2010.
