Paul Ferraresi

The concepts we have emphasized, and continue to emphasize, using all of Doug Andrew’s Missed Fortune ideas are important to your wealth building.

Many people have a difficult time connecting the dots of these time tested strategies.

The Missed Fortune strategies are used by the wealthy “Thrives” in our society. Looking back, I remember my mom always taught me … “If you want to be a great ballplayer, singer, chef or what have you, then mimic them.” She said, “If you want to be skinny, do what a skinny person does. Or, do what a fat person does if you want to be fat.” Her best line was … “If you want to be rich…do what the rich do!” Duh!

So, if you want to be rich do what the rich do in Missed Fortune.

If you are having a tough time trying to digest the Missed Fortune ideas into your life, then here is a way to get you started.

Although Roth IRA’s have many benefits, there are too many strings attached to provide the “best” retirement plan for you. None the less, if you want to make use of a Roth Conversion, here is an approach using part of Doug Andrew’s ideas.

Let us say you have a $100,000 IRA and desire to convert it to a Roth IRA. Why, because you know that in the future (until they change tax laws) you will be able to take money out of the Roth tax free. The basics of a Roth IRA is you pay tax on the contribution phase (either the payment in or conversion), it grows tax free and you can withdraw money tax free (within certain guidelines and strings attached).

So if you take the $100,000 regular IRA and convert it to a Roth IRA there will be income taxes due. If you are in the 25% tax bracket, you will owe $25,000 come the next April 15th from the prior year conversion. The benefit to you is that later you withdraw the money out tax free. You cannot use part of the $100,000 conversion money for payment of taxes as it will trigger an early withdrawal penalty and additional tax. Well, how do I pay the tax you ask…? From your existing cash flow or monies set aside. Hmmm. You say you don’t have the monies around?

Here is a strategy if you do not have the money to pay taxes. You would borrow $25,000 from your home equity. Use that money to pay the tax. At a 7% interest only loan, that would cost you $1,740 per year or $1,312 after your tax savings (since it is deductable interest). So 5 years from now your total “carry cost” would be $6,500. Assuming your $100,000 in the Roth conversion grows at 8%, then, in 5 years it will be worth $147,000. You could pull out tax free (subject to your age and other limitations) the $47,000 gain. Take the $47,000, pay off the home equity loan of $25,000, and replenish the $6,500 previously paid net interest cost to yourself. You would still have $15,400 remaining plus the $100,000 in the Roth.

This is just another way to look at how to build your wealth.

Contact us if you have any questions.