FAQ

Why Use a Financial Advisor?

Financial planning is serious business.

It has a fundamental impact on you, your family and your business.

For investors, today’s environment is cluttered and chaotic. The economy is increasingly dynamic. Markets – and politics – are global. There are thousands of investments from which to choose. But most investors don’t have the time or the inclination to become a financial analyst.

The right advisor will at as your trusted advocate in an environment of constant change. The Advisors at Morris Nutt Financial are intimately familiar with the products, plans and processes that can help you achieve your goals.

With so much at stake, there’s no better feeling than finding an experienced advisor you can trust.

Who can make a contribution to a Roth IRA?

Single taxpayers with adjusted gross incomes (AGI) of less than $105,000 or married taxpayers filing jointly with AGIs of less than $166,000 may each make a full contribution. For single filers, the allowed contribution is phased out for AGIs between $105,000 and $120,000. For married individuals, the allowed contribution is phased out for AGIs between $166,000 and $176,000. No contribution is allowed if an individual is married and files separately, unless the AGI is under $10,000.

Can I convert my current IRA to a Roth IRA?

Yes. An individual with an AGI of less than $100,000 (no distinction is made for married filing jointly) can roll over a traditional IRA to a Roth IRA.

Note: In 2010, the $100,000 AGI limit will be eliminated. Conversions in 2010 will have two years (beginning in 2010) to pay the taxes incurred from the conversion. The option to spread federal income taxes over two years applies to 2010 only. For conversions occurring after 2010, the federal income taxes must be paid in full the following tax year going forward. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Can I convert an IRA to which I made nondeductible contributions?

Yes. However, income tax is due on the distribution amount less any nondeductible contributions.

Can I convert after starting my age 70 1/2 required distribution?

Yes. The amount of the required minimum distribution from the traditional IRA for that year cannot be included, but the remaining account balance can be converted or rolled over to a Roth IRA.

Can I contribute to both a traditional and a Roth IRA?

Yes, but currently the combined contribution limit is $5,000 or $6,000 for those age 50 and older.

What are the deductibility rules for traditional IRAs?

For single taxpayers, the threshold for full deductibility is $55,000 for 2009. The deduction is incrementally reduced for AGIs above $55,000, reaching zero at $65,000. For spouses filing jointly, the deductibility threshold is $89,000 for 2009, with the range for the incremental reduction stretched from $10,000 to $20,000. Thus, starting in 2009, the deductibility is phased out with AGIs between $89,000 and $109,000.

Is there a penalty for early withdrawal from a traditional IRA?

Yes. However, certain distributions are exempt from the 10% premature distribution penalty. Withdrawals made before attainment of age of 59 1/2 are exempt from the penalty if made:

• For the first-time purchase of a home (lifetime limit of $10,000)
• For the payment of qualified higher education expenses
• To an alternate payee pursuant to a divorce decree or separation agreement
• For the payment of medical expenses in excess of 7.5% of AGI
• For payment of health insurance premiums during certain times of unemployment
• As a series of substantially equal payments and/or
  (Please be aware that the early distribution penalty tax exception, substantially equal periodic payments, available via Section 72(t) of the Internal Revenue Code, is subject to very specific guidelines, and thus, various factors should be carefully considered. Investors should understand the account value (net equity and/or principal balance) could potentially be exhausted if the distributions exceed the earnings and growth of the investment(s) in the account. Also, the ability to sustain substantially equal payments can be compromised if the account is exposed to higher volatility through higher risk or growth-oriented products. Always consult the advice of an independent tax professional prior to initiating 72(t) substantially equal periodic payments.)
• As a result of disability or death of the IRA participant

What are the consequences of a withdrawal from a Roth IRA?

Distributions of conversion amounts made prior to five years are subject to penalty. The earnings of nonqualified distributions are taxable as ordinary income and subject to penalty unless made for death or disability, first-time home purchase ($10,000 lifetime maximum), medical expenses in excess of 7.5% of AGI, certain educational expenses, or as part of a series of substantially equal payments based on owner’s life expectancy.

(Please be aware that the early distribution penalty tax exception, substantially equal periodic payments, available via Section 72(t) of the Internal Revenue Code, is subject to very specific guidelines, and thus, various factors should be carefully considered. Investors should understand the account value (net equity and/or principal balance) could potentially be exhausted if the distributions exceed the earnings and growth of the investment(s) in the account. Also, the ability to sustain substantially equal payments can be compromised if the account is exposed to higher volatility through higher risk or growth-oriented products. Always consult the advice of an independent tax professional prior to initiating 72(t) substantially equal periodic payments.)

Should I convert my current IRA into a Roth IRA?

If you can pay the taxes due on the distribution from a source outside your IRA, you will likely be better off with a Roth. If you are young and in a lower tax bracket, the implications of tapping your account to pay the tax bill will be offset by years of potential tax-free earnings and ultimately, tax-free withdrawals. However, if you anticipate being in a much lower tax bracket in the future, it may not be advantageous to pay tax on your existing IRA today. Consult your financial advisor to help you assess the pros and cons of the alternatives.