The Roth Segregation Conversion Strategy

The other day in my post on Marotta Asset Management’s posts on Free Money Finance I mentioned a maneuver that could make a person some money that involves converting from traditional to Roth IRAs. It’s a fairly obscure strategy.  Google and I were only able to find one other explanation of it, in an article in the Journal of Retirement Planning from 2007. (See page 57.)

So Marotta may deserve credit for introducing this trick to the blogosphere.  Of course, last week I said that I thought that Marotta didn’t explain it very well.  It seems only sporting that I try explaining it myself.  In case it needs to be made clear, I am neither a CPA nor a lawyer, just a sneaky jerk who likes to do things that make him feel clever.

First, a few preliminaries.  Traditional IRAs can be converted into Roth IRAs, but a person has to pay tax on the balance that was in the traditional on the day of conversion as if it was income earned in that year.  Currently there is an eligibility limit based on income to be allowed to convert, but that limit goes away in 2010.

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June Frugal Friday

It’s the first Friday of the month, so it’s time to review all the exciting recent developments in the frugalosphere.

May was a month of themes, some old, some new. In the old category there was the ongoing frugal controversy over toilet paper.  We were cheered to read that a California county stopped buying four-ply tissue.  Much of California’s current budgetary troubles are no doubt traceable to this luxury.  And the Frugal Duchess shared a related tip: flatten the roll "a bit" so it doesn’t roll so easily and waste paper.

But then One Caveman’s Financial Journey had a long and well researched post making the case that, in the long run, more expensive toilet paper is actually cheaper. Apparently, his research shows that a person uses less of the good stuff, resulting in a net savings of $0.002 (a fifth of a penny) per bathroom visit. We will have to wait for other frugal scientists to reproduce these results before we accept his findings.

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Any Printed Number is Believable

Many years ago (19 to be exact) an otherwise unknown research firm put out a report on the average amount of time spent during an American’s life doing various mundane tasks.  It was presented in terms of years, so many years spent watching TV, so many washing dishes, and so on.  The media loved it and widely reported the numbers along with the obvious commentary that we Americans were wasting our lives with trivia and drudgery.

Except that to anybody who thought to do some simple math in their head, the numbers were hilariously implausible. I wish I could find a copy of the report now, but this was in the pre-internet dark ages. My possibly faulty recollection is that they said we spend an average of 6 years in the bathroom.

If you don’t think about it, and want to write about how we spend too much time alone in a tiny room, 6 years sounds just believable enough to use.  But if you do some quick calculations, you realize something is very wrong.  Assume the average life expectancy is 72.  (About right and it makes the math easy.) Then each year of your life is 20 minutes per day.  Two hours a day in the bathroom?  Every day? Average?

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A Guest Poster Who Has Worn Out His Welcome?

The blog Free Money Finance has a recurring guest blogger usually identified as Marotta Asset Management.  In fact, Marotta posts often enough and has been doing so for long enough that the designation of "guest" seems a little strained.  I assume that this is one of those mutually beneficial barter arrangements that make the blogosphere go.  FMF gets free content and Marotta gets free advertising for their business.  (They are a financial planning firm in Charlottesville, VA.)

The only flaw in this swap scheme is that the posts aren’t very good.  I mean that both in the sense that the content falls short of what you would hope to see from an actual working financial advisor (not "just a blogger") and in the sense that the posts are not written as well as I would like.  Indeed, on more than one occasion I have aborted plans to write about them here because in parts I am not sure what they are saying.  And that makes it hard to argue that a post is wrong, even when I am pretty sure that it is.

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Guest Post on Consumerism Commentary

I’ve got a guest post on Consumerism Commentary today, so if you want your daily dose of my brilliant thoughts, you need to go there.  I did not pick the calming and pastoral photo.