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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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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This Time it’s Not Different

Friday calls for lighter fare, so today I thought I would present evidence that this financial crisis we are now living through is not particularly unique. Realizing that some may find the idea that we are doomed to go through this every few decades less than cheering, I will present it in the form of a quiz.  As I’ve said before, everybody likes a quiz.

Question 1: The Buildup

In what year did BusinessWeek editorialize as follows about the stock market?

For five years at least American business has been in the grips of an apocalyptic, holy rolling exaltation over the unparalleled prosperity of the "new era" upon which we, or it, or somebody has entered.

Stock prices are generally out of line with safe earnings expectations, and the market is now almost wholly "psychological."

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The Efficient Market Theory Hoax

You may have heard of something called the Efficient Market Theory.  If you did, it was almost certainly in a negative context, some writer or blogger excoriating those egghead finance professors for confusing the world with their crazy and dismal theories. This is a rant mostly heard from the advocates of investing in individual stocks, but is also found occasionally in the arguments of those in favor of active funds over passive (index) funds and market timing over passive asset allocation.

Apparently, this poisonous heresy has been spread by overly educated academics near and wide for decades.  They convince their innocent students that it is categorically impossible to make money picking stocks, that anybody who does anything other than buy an index fund is a fool.  It’s a viewpoint that is not just wrong, it’s dismally pessimistic and, let’s face it, simply un-American.

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Ten Things Dave Ramsey Got Wrong

The other week I finished up a five part series of posts on Dave Ramsey’s Seven Baby Steps.  It seems to have been well received and still gets a steady stream of clicks.  But honestly, I was expecting a larger and more hostile reaction than I got, at least as measured by comments and emails.  Ramsey has a very large and devoted following, particularly, it seems, in the blogosphere.

At least I thought so.  Maybe I was wrong about that.  Perhaps Ramsey is well liked but not, ultimately, taken all that seriously.

Or maybe I was just a little too subtle in what I wrote.  Perhaps when I said that “His advice on higher level personal finance topics such as investing and taxes is weak and often misinformed because his knowledge in those areas is limited” my readers thought I was exaggerating for effect.  And perhaps when I criticized him for giving advice “on topics such as investing, about which he should probably just keep quiet” those readers didn’t really think I meant that his listeners would be better off if he didn’t cover those topics at all.

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