Investor, Know Thyself

Yes, you can achieve positive returns in today's turbulent market. But it starts with you and knowing your "money personality."

payable right away. If you have a $100,000 IRA, for example, the tax bill might be $35,000 or more.

“I’ve been reluctant to convert to a Roth IRA because of the immediate tax obligation,” says Linda McCurry, 46, a database administrator in Kansas City, Missouri. “I had built up a 401(k) for 10 years and rolled it over into an IRA when I changed jobs. Converting to a Roth IRA would generate a large tax bill.”

That’s where the bear market comes in. McCurry estimates that her IRA had taken a 25% hit by the time the market bottomed last September, and it’s still down by 20%. A smaller IRA balance means a lower tax bill if you do a Roth IRA conversion. Since she has received a recent inheritance, McCurry says, “I will discuss with my advisor whether paying the tax on a Roth IRA conversion is a good use of [the inheritance] money.”

Salmen, who advises McCurry, says the decision will depend on several factors, such as her tax bracket and the length of time until the Roth IRA will be tapped. “Generally, a Roth IRA will be a good move if you can leave the money alone to grow for at least 10 years,” Salmen explains, “assuming that you qualify for the conversion and have the cash to pay the up-front income tax.”
–Additional reporting by Reginald Hart

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