Saturday, June 23, 2012
CBS Money Watch, How to Profit From the Presidential Election:
Sometimes two unremarkable and unrelated ideas can be merged into a single brilliant strategy. Gregg Polsky, a tax professor at the University of North Carolina School of Law, recently emailed me two such ideas. His proposal -- combining a Roth conversion with the November presidential election. This is how it would work....
Let's say you have $20,000 in an IRA and are in the 30 percent marginal tax bracket. If you converted it to a Roth IRA, you'd pay $6,000 in taxes. Rather than do one Roth conversion, Polsky suggests doing two $10,000 conversions. With Roth IRA conversion one, you buy Obama options; with the second conversion, you buy Romney options. The goal is that one of the Roth conversions would double in value and become worth $20,000, while the other would expire and become worthless. Then you recharacterize the worthless IRA account and owe nothing in taxes. You'd have to pay $3,000 in taxes for the Roth conversion you keep. This means you converted $20,000 to a Roth, while paying only $3,000 in taxes. That's a 15 percent rate and a savings of $3,000.
- Financial Planning, Betting On A Roth Conversion
- Gregg D. Polsky (North Carolina), High Volatility, Negative Correlation, Roth IRA Conversions, and the Codified Economic Substance Doctrine