LIKE TO GAMBLE? DO IT FOR FUN, NOT PROFIT

By John Ingrisano

By John Ingrisano

Director, Family Finance Conference Center

Here’s a short quiz.

Question # 1:  At the end of 50 years, how much money do gamblers end up with who “invest” $50 a week on lottery tickets or at the casino? 

Question # 2:  At the end of 50 years, how much money do non-gamblers end up who put $50 a week into an IRA or other long-term investment, one that earns, say, an average 5% return?

Answer to question # 1:  zero!  If you think otherwise, you’re fooling yourself … or maybe you’re that 1-in-100,000,000 who actually hit the jackpot.  (I’ve heard about those folks all my life, but never actually met or even saw one.)

Read on for the answer to question # 2.

First, a brief rant.  One of my biggest pet peeves (this one’s about the size of a male yak) is standing at the counter of the gas station/convenience center waiting to pay for my gas, and I’m behind this guy or gal hunched over and frantically scratching off lottery tickets with more determination than a dog going after fleas.    

Now, I really don’t mind the waiting, and I admit that I do enjoy gambling from time to time, so don’t get me wrong on this.  BUT … these folks almost always are driving a car my father might have traded in fifteen years ago and they look like they’re living from paycheck to paycheck … or even three or four paychecks behind.  (Add in that they’re buying $7/pack cigarettes and I’m ready to blow a gasket.)

I know, I know, it’s not my business.  However, I see some folks who do this every week, who shell out anywhere from $20 to $50 hoping to hit the big one.

So, here’s the skinny on gambling, whether lotteries or casinos:  If you like to gamble, great.  It can be good recreational fun.  However, did you know that, according to Thomas J. Stanley, author of “The Millionaire Mind,” most millionaires almost NEVER gamble.   

So, let’s imagine that my friends at the gas station are “investing” $50 a week in lottery tickets.  That’s $2,600 a year they’re out!  (If they win a few bucks, they almost always buy more tickets.)  They scratched off enough for a mini-vacation or purchase a newer car.  Money down the drain.

Now imagine (yes, this is where it gets boring, but pay attention), they put that money into an IRA, and let’s say again that the rate of return is 5%, compounded monthly.  They start when they are 18 and just beginning their first job.  They continue until they are 68 and ready to retire. 

In 50 years (and here’s the answer to question # 2) that $2,600 per year has grown to $580,000.  That is one sweet retirement nest egg. 

The bottom line:  Like to gamble?  Fine.   However, if you want actually to become wealthy, talk to your financial advisor about where to put your money.            

Now, go out and work hard, make money, have fun and save a little each week for the future. 

* * *

Want to learn more about how to manage your money and your life?  Check out The Back to Basics Book of Money! A Couple’s Guide to Financial Peace.  The book contains 10 valuable Couple Money Skills.  Plus, the Back to Basics Book of Money Workbook (which dovetails with the main text) offers 31 practical, hands-on Wealth Builder activities that can help you and your partner build financial and domestic stability.  Both the book and workbook, which retail for $31.98 plus S & H, are available at the Family Finances Conference Center website for $27.99 total.

The Family Finances Conference Center tailors programs to the unique and individual needs of client organizations and their members and employees, based on the principles of the book and workbook set, The Back to Basics Book of Money!  A Couple’s Guide to Financial Peace. 

For more information, contact me at the Family Finances Conference Center by email (john@b2bbookofmoney.com) or my direct phone line (920-559-3722).

John Ingrisano

Director

Family Finances Conference Center

204 Lakeview Drive

Algoma, WI 54201

(920) 559-3722

john@b2bbookofmoney.com

ARE YOU UP ON THE NEW ROTH IRA CONVERSION RULES?

By John Ingrisano

As of this year (2010), EVERYONE is eligible to convert his or her Traditional IRA to a Roth IRA, even if your income exceeds $100,000.  Not only have income limits been stripped out, but any taxes due can be spread over tax years 2011 and 2012.  So, if you haven’t (A) decided you want to and/or (B) been eligible to convert your IRAs in the past, now may be the time to review your choices.

What changed?  In the past, if you had an adjusted gross income above $100,000, you could not convert a Traditional IRA to a Roth.  Period.  End of discussion.  Also, if you were eligible to make the conversion, all income tax owed had to be paid in the tax year of the conversion, making it a very expensive proposition.

However, thanks to the Tax Increase Prevention and Reconciliation Act of 2005, the income restriction no longer apply as of January 1, 2010.  There currently is no expiration date, so the opportunity will continue unless or until Congress makes a change. 

However, there is a special provision for taxpayers who make their Traditional-to-Roth conversions this year.  Any money owed the IRS can be split between the following two years – 2011 and 2012 – so the final payment would not be due until April 15, 2013.  In other words, you do not even owe tax money on the conversion in the 2010 tax year.  Plus, being able to divide the converted amounts over two years could lead to significant tax savings overall.  (As always, talk to your tax advisor to make sure this is a good deal and, if so, how it should be structured.)

Why should you consider converting your Traditional IRA to a Roth IRA?  Here are three factors to weigh:   

• Earnings and qualified distributions are completely income tax-free.  You pay zero income taxes on the money at retirement.  With a traditional IRA, all or a portion of your distributions may be taxable.  The Roth vs. Traditional decision often depends on the size of your projected retirement income.

• Early withdrawals of contributions are tax-free and penalty-free.  Since contributions to a Roth IRA are made with after-tax dollars, early distributions of earnings may be subject to tax and penalty; however, you can withdraw your contributions pretty much at any time.

• Contributions are allowed after age 70 ½.  Unlike with a traditional IRA, you can continue making contributions to your Roth IRA after age 70.  So, if you anticipate working beyond that age, a Roth IRA will let you continue to put aside money (that can be used for your future or eventually distributed to family members at your death) and delay withdrawals until you decide the time is right.

However, keep in mind that Roth IRAs have limits and limitations, including: 

• Contributions are non-deductible.  The money you put into a Roth IRA comes from after-tax income.  With a traditional IRA, all or a portion of your contributions generally is deductible, based on income and other factors.  This makes the Roth attractive to taxpayers in lower tax brackets and to individuals who do not need the deductions in the current tax year.

• There are income limits on contributions.  Even though you can roll over your regular IRA into a Roth in 2010, regardless of your income, there are income restrictions on additional contributions.   

The bottom line:  The Roth IRA is a dynamic, flexible tool.  Is it right for you?  Would a Traditional IRA be better?  Or should you have a combination of both?  Or should you take the Traditional-to-Roth conversion in 2010?  These are decisions best discussed one-on-one with your tax advisor, who can cover the specifics as they apply to your situation.