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Friday, May 28, 2010

Book Review - The Gospel of Roth

The Roth Bible or Everything You Want to Know About Roth - these can be two other appropriate titles for The Gospel of Roth: The Good News About Roth IRA Conversions and How They Can Make You Money by Roth by John D. Bledsoe. The Gospel of Roth is an excellent book on Roth IRA conversions. Virtually all the questions you can think of regarding Roth IRA conversions, are answered in this book.

About the Author

The book is written by John D. Bledsoe who is a financial advisor and estate planner with over 20 years of experience. He is also the owner of John Bledsoe Associates, which is a life insurance brokerage specializing in estate planning. He has written over 1,000 financial articles and has authored three additional books, Rock Solid Estate Planning, Texas Living Trust, and Roth to Riches. He is currently working on his fifth book, One Turn Away.

About the Book

The Gospel of Roth consists of 244 pages and the following ten chapters:

Chapter 1 - The Roth Conversion Option
Chapter 2 - In the Beginning Congress Created the IRA
Chapter 3 - The Advent of the Roth IRA
Chapter 4 - Roth IRA Math
Chapter 5 - Our Income Tax Structure
Chapter 6 - The Stretch IRA Hoax
Chapter 7 - Estate Planning and the IRA
Chapter 8 - What Could Go Wrong?
Chapter 9 - Tips and Tricks: The Reason to Roth
Chapter 10 - Questions and Answers

In addition, the book contains many appendices related to Roth IRA conversion mistakes and other topics.

The central idea of this book is that you should convert your traditional IRA and retirement plans to Roth IRA as soon as possible. Starting January 4, 2010, anyone can convert to Roth regardless of their income levels. According to the author, the conversion could increase your retirement spendable assets by over 40 percent! The author believes that most people are wasting time going through calculators and other computations in deciding whether to do the conversion or not. Instead, he recommends the "Ready, Fire and Aim" approach - do the conversion as early as possible during 2010 and then decide later whether you will come out ahead or not. Why? Because you can always undo the process by recharacterizing your conversion. He calls this the "Roth Conversion Option" (RCO) - do the conversion first and then run the numbers.

For the 2010 conversion, the recharacterization deadline is October 17, 2011. By that time, you will be able to know the tax rates for 2011, the performance of your converted Roth IRA accounts, and other important information which will help you make an informed decision on whether to stick with the conversion or undo it using recharacterization. Good thing about conversions in 2010 (only) is that you can choose to defer income taxes to 2011 and 2012 by recognizing half the income from the 2010 conversion in 2011 and the other half in 2012. Of course, if the tax rates increase in 2011, you can always choose to pay taxes in 2010 itself. Again, according to the author, you have until October 17, 2011 to commit to which year(s) you elect for paying taxes for the 2010 Roth conversions.

When doing the conversion, the author recommends that you follow certain strategies to make the recharacterization easier. For example, he recommends that:

1. Convert all traditional IRAs and retirement plans into separate new Roth IRAs divided by asset class. Do not combine the newly converted money with older Roth IRA accounts.
2. Have separate Roth IRA account for each retirement plan, with no single accounting exceeding 20% of the total. If the 20% limit will be exceeded, divide it into two or more Roth IRA accounts.
3. You don't need to convert all your traditional IRAs and retirement plans in the same year. It may be more efficient to convert over a few years to maximize the use of lower brackets.
4. Convert as early as possible in 2010 - the earliest date is January 4, 2010. Then around December 3, 2010, recharacterize or unconvert any Roth accounts that have lost substantial value since Jan 2010 conversion, and convert again to Roth on Jan 3, 2011 to start the RCO on them for 2011. You pay balance of 2010 tax by April 15, 2011 and add payment for 2010 for the 2010 Roth conversion to preserve penalty-free option for 2010 rates till October 17, 2011. You then analyze your situation over the Sept - October 15, 2011 period and unconvert/recharacterize any 2010 Roth IRA accounts that need to be unconverted to regular IRAs.

The book is filled with many of the benefits of Roth IRA, including protection from future tax increases as well as being better from the estate tax perspective. The book also provides many things that can go wrong with the Roth conversion such as forgetting to unconvert, ignoring state income taxes, not converting into separate new Roth accounts, Congress imposing tax on Roth IRAs in future, and so forth.

What I like about the book?

This is a great book which recommends an unconventional but more practical (although requiring a bit more work), business approach to deciding whether to stick with Roth conversion. The author debunks many of the myths that we come across in the media and provides his unique take on the conversion process. The book is an easy read and is filled with tons of questions and answers, making this book a valuable resource on Roth IRA conversions.

What I dislike about the book?

I don't have much to say in terms of not liking the book. The book is focused on a niche topic and covers it in extensive detail. At times, this makes the book a bit repetitive. However, I liked the repetition as it kept reinforcing the importance of doing the reconversion and the steps involved in maximizing the benefits of conversion.

Final Word

This is an excellent book on Roth IRA conversions. If you have money in traditional IRAs and retirement plans and want to learn the benefits of doing the Roth conversion, you will find this book to be an excellent resource. Many of the recommendations that the author makes may not even be familiar to many financial planners and CPAs.

I have received complimentary copy of the book. Please also see Disclosures and Disclaimer

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