Roth IRA Conversion

Virtually everyone has a traditional IRA or assets held in an employer-sponsored retirement plan such as a 401k should evaluate the potential benefits of a Roth IRA and determine whether a Roth conversion makes sense, based on their individual circumstances.

Likely Candidates are individuals who:
Will be in a higher tax bracket in retirement
Expect tax rates to increase
Have funds outside their IRA to pay taxes on the amount converted
Have a long-term horizon to benefit from tax-free compounding before retiring
Wont need to take income from the Roth IRA in retirement

Unlikely Candidates are individuals who:
Will be in a lower tax bracket in retirement
Expect tax rates to go down
Do not have funds outside the converted amount to pay taxes due
Have a short time frame to take advantage of tax-free compounding before retiring
Have projected income needs equal to or greater than required minimum distributions

Roth IRA's allow you to:
Receive tax free income in retirement
Make contributions after age 70.5
Pass assets to heirs income tax free
Eliminate the need to take required minimum distributions

Roth IRA:
If you qualify you can contribute annually to a Roth IRA, the benefits include: Contributions are always nondeductible.
$5,000 annual contribution limit; $6,000 total annual contribution for those age 50 or older.
If filing singly, contributions are possible if your MAGI is no higher than $120,000 in 2010.
If filing jointly, contributions are possible if your combined MAGI is no higher than $177,000 in 2010.
No age restrictions; taxpayers age 70 1/2 who don't exceed MAGI restrictions and who have earned income may contribute.


Rent to Own

Rent-to-Own is a real estate agreement which is composed of a lease and a purchase agreement where the tenant has the option to purchase the property at a fixed price at a specified point in the future.

The buyer makes payments directly to the seller. "Seller Financing"

The option to purchase the property states the price of the property and the time period during which the tenant may exercise the option

More popular during downturns in the housing market

Seller Benefits

Seller must own house outright to take advantage of Seller Financing

Investment: allowing the seller to generate a decent return on the sale of the property, in the form of monthly income.

Tax Benefits: Seller pays tax on only the amount they receive within that tax year

Seller opens up the property to a much larger market

No lender = no closing costs, no appraisal fees, no mortgage insurance, no realtor commission

Allows seller to vacate property before it is sold

A way to find good tenants

If renter fails to exercise the option it expires

Buyer Benefits

Credit: reduced cost of credit and improved access to credit

Pays a premium on the rent in addition to an option fee

Option fee can later be used as a part of a down payment if the option is exercised

Allows buyer to get financing together

Buyer Disadvantages

Buyer will not, under most circumstances, be able to claim the mortgage interest paid as a tax deduction

Most seller financing homes have higher interest rates


For more information:

www.morganstanley.com