Wi$eUp Teleconference Call
Work and Money: Making the Best of Hard Times
January 30, 2009
Questions & Answers
Jane Walstedt: So right now I’d like to turn the floor over to our operator to remind us how to ask questions. Melissa? Melissa?
Melissa?
Coordinator: If you're on the phone, please press star 1. Again, please press star 1.
Jane Walstedt: Do we have any questions, Melissa?
Melissa, do we have any questions?
Maybe while we’re waiting for the questions from the participants, Sarah Miller here in the room with me has a question.
Sarah Miller: Hi. Yes. I've been hearing a lot lately about green jobs and how those are really growing. I'm just curious if anyone has any information on those or where I could go to find out more.
Kristina Bartsch: Yes, this is Kristina Bartsch.
Sarah Miller: Yes?
Kristina Bartsch: I'm not going to…I don't have much information on green jobs. I will say that it's certainly an important issue now. I think it's something that a lot of people are looking at.
The Bureau of Labor Statistics, we don't currently measure green jobs. And there are a couple of reasons for that.
First of all we adhere to the 2000 Standard Occupational Classification System and to the North American Industry Classification System when we collect and analyze and publish our employment and wage data.
And neither one of these classification systems define occupational titles to industries as green. So we can't identify or enumerate green jobs in the industry because it's not very clear in their system.
Another reason that we haven't done it is because there currently is no consistent definition of what constitutes a green job or a green industry. And we are very interested in the topics and would like to work to come up with a good definition so that at some point that would be something that would be measurable.
Jane Walstedt: Thank you very much, Kristina. Melissa, do we have any questions? Melissa?
Stay with us listeners. Melissa? Do we have any questions?
Coordinator: Yes we do. Excuse me.
We will now begin the question and answer session. If you'd like to ask a question, please press star 1. Please unmute your phone and record your name clearly when prompted.
Your name is required to introduce your question. To withdraw your question, press star 2. One moment please while we wait for the first question.
Ethel McGowan, your line is now open.
Ethel McGowan: I'd like to know if the Federal government is going to offer a Roth Thrift Savings Plan for retirees who are over 50 working in the Federal government.
Jane Walstedt: That's a good question for all of us who are Federal employees. And I know there are quite a few Federal employees registered for the call. Although I'm not sure that our speakers are equipped to answer that question, I will say that we are also going to send our questions to the Wi$eUp experts after the call. And if none of them answer that question, then I will personally check and get the answer to that and we’ll post it.
I don't … speakers, I don't imagine any of you know that, do you?
Kristina Bartsch: No, I don't.
Lisa Featherngill: No. This is Lisa. I haven't heard anything.
Jane Walstedt: Right. Okay. Well questioner, we will get you an answer to that question, just probably not today.
[Editor’s Note: The Thrift Savings Plan (TSP) is currently not offering a Roth 401(k) feature; however, because of the interest in adding a Roth 401(k) feature to the TSP, the Federal Retirement Thrift Investment Board is working with Congress on granting the TSP this flexibility. A bill—H.R. 1108—which would have included authority for the Board to add a Roth feature was introduced in the last session of Congress, but was not enacted. The Board has begun discussions with the current Congress about enactment of such authority. See Is the TSP Offering a Roth 401(k) Plan?]
Ethel McGowan: Okay. Thank you.
Coordinator: Flora Williams, your line is now open.
Jane Walstedt: Go ahead. Flora?
Flora Williams: I don't have a question. I'm sorry.
Jane Walstedt: Okay. Melissa, do we have another question?
Coordinator: Noreen Nowell, your line is now open.
Noreen Noel: Yes. I guess I'm also wondering. I have heard some talk about there may be a timeframe either in 2009 or 2010 where you could convert a traditional IRA over to a Roth IRA without penalty. Has that happened or will that happen?
Lisa Featherngill: That's a good question. Thank you. This is Lisa.
Right now you can convert a traditional IRA to a Roth IRA. But your income has to be below a certain level.
Noreen Noel: Okay.
Lisa Featherngill: In 2010 that income level is lifted just for that one year.
Jane Walstedt: Is it lifted… will there be no income limit, Lisa?
Lisa Featherngill: That's right. That's right. So anybody could take a traditional IRA and convert it to a Roth. The downside is that you have to pay the tax when you do that. The upside is that you don't have to pay any future tax on money that comes out of that IRA.
Nancy Granovsky: Lisa, this is Nancy Granovsky. Let me ask you to elaborate a little bit more on that. Let's do a little scenario. Because if that will be the year in which people will be able to roll over and pay any tax consequences, discuss a little bit about the impact if people’s regular IRAs have fallen in value and what relationship that has with the rollover.
Lisa Featherngill: Sure.
Nancy Granovsky: To the Roth.
Lisa Featherngill: Sure. And I think, Nancy, what you're alluding to is that it may be a really good opportunity to roll it over - to roll - not to roll over, but to convert to a Roth. Because the value is going to be low. And as I said, the downside is you have to pay tax upfront.
So let's say it's an IRA that came from a retirement plan rollover. And so let's say that all the money in there is taxable when it would be distributed-- $100,000.
So you would…in 2010 there's no income limit, and you decide you're going to go ahead and convert to a Roth, you have an additional $100,000 income that you have to pay tax on that year.
But yes, the good…one of the few good things about 2008 is that it may have been worth $150,000 a year ago and now you can convert it on the current value in 2010, and any future growth is going to be tax free.
Jane Walstedt: So basically, as I understand it, Lisa, the advantage of doing it in 2010 is there's no income limit.
Lisa Featherngill: Anybody could do it.
Jane Walstedt: But you're still going to pay taxes, whether you do it in 2009 or 2010.
Lisa Featherngill: That's right. Right.
Jane Walstedt: Okay. Noreen, does that answer your question?
Noreen Noel: Yes, it does. But you're not sure of what the income limit is for 2009?
Lisa Featherngill: For 2009, it was 100…it depends on if you're single or married filing jointly. It was $150,000, but it escalates with inflation.
[Editor’s Note: In 2009, you can convert amounts from a traditional IRA into a Roth IRA if, for the tax year you make the withdrawal from the traditional IRA, both of the following requirements are met:
· Your modified AGI for Roth IRA purposes is not more than $100,000
· You are not a married individual filing a separate return ]
Jane Walstedt: Well maybe we can check that and put that in the transcript parenthetically.
Lisa Featherngill: Thank you. That’d be great.
Noreen Noel: Thank you very much.
Jane Walstedt: You're welcome. Melissa, do we have another question?
Coordinator: Yes. Our next question comes from Lisa Woodson. Please go ahead.
Lisa Woodson: Hi. This question is for Lisa. You had spoken earlier and kind of given a breakdown of the differences between having the Roth 401(k) versus the traditional 401(k). And so my question is if you have a Roth 401(k) through your employer, can you roll those funds over into a traditional 401(k) or can they not be moved from plan to plan?
Lisa Featherngill: No you don't want to…you can't mix them, and you don't want to because the Roth 401(k) money is protected from taxes forever. So you don't want to mix it with any money that would be taxable in the future.
So you always have to keep it separate. You can take the Roth portion and convert it to a Roth IRA at some point in the future.
Jane Walstedt: The Roth portion of what?
Lisa Featherngill: I'm sorry, of the 401(k).
Lisa Woodson: Okay, so let me make sure I'm clear, because you made a really valid point that I wasn't aware of when you are talking about how it makes sense to get a Roth IRA even though the maximum contribution is $3000 because there's no IRS requirement for distribution?
Lisa Featherngill: Yes.
Lisa Woodson: So if I have X amount of money -- this is actually a new 401(k) that I've only had for a short amount of time. It’s a Roth 401(k). Can I now convert that into a Roth IRA and then go back to contributing to a traditional 401(k) through my employer?
Lisa Featherngill: So let me…your employer is offering a traditional 401(k) and a Roth 401(k)?
Lisa Woodson: That's correct.
Lisa Featherngill: Okay. Then I would say that you really do have three choices.
Lisa Woodson: Okay.
Lisa Featherngill: You have the choice of the traditional 401(k), the Roth 401(k) and then the Roth IRA up to, just, you know, up to a maximum of $5000. Okay?
Usually I promote going…contributing the maximum you can pretax.
Lisa Woodson: Okay.
Lisa Featherngill: Okay? Just because it's easier. You do it right off the top. I mean you can do the Roth 401(k) right off the top too. And a lot of it is going to depend on the individual. But for generally speaking, contribute to the traditional 401(k) first.
Because you…and if you put in the maximum you can into that plan, it's probably easiest just to go right into the Roth 401(k). Because at a later date you could roll that into a Roth IRA. But for recordkeeping purposes it's nice to have everything all in one place too.
Lisa Woodson: Perfect. Okay. Thank you so much. I appreciate it.
Lisa Featherngill: Sure.
Jane Walstedt: Thank you. Melissa, do we have another question?
Coordinator: Yes. Our next question comes from Carrie Jacobson. Please go ahead.
Carrie Jacobson: Yes. Hi. I just want to clarify what you guys have been talking about about the Roth IRA, excuse me, the Roth 401(k) and the regular 401(k).
If you max out your traditional 401(k), and your employer offers a Roth 401(k), can you then continue?
Lisa Featherngill: You know what, you just brought up a very good point, and I apologize to Lisa. You're right. If you put the maximum into the pretax portion [the traditional 401(k)], you can't go into [continue to contribute in] the Roth portion of the 401(k).
Carrie Jacobson: Okay, so you would...
Lisa Featherngill: You would have to go to the IRA. I'm sorry. That's right. You basically have that $16,000 that you can put into the IRA - more if you're over 50. And you have to allocate that between the pretax and the after-tax.
So it's going to depend on the person, but generally it's going to make sense to go into the pretax.
Carrie Jacobson: Okay. I've got one more follow-up question. Then is it similar with the IRAs? If I have a traditional IRA and I max that out, then can I contribute to a Roth IRA, or can I only contribute to one at a time?
Lisa Featherngill: You're right. It's the same.
Carrie Jacobson: Okay.
Lisa Featherngill: It's the…so you've got it. If you've got $5000, you've got to decide between the traditional and the Roth how to allocate it.
Carrie Jacobson: Okay. Great.
Jane Walstedt: Thank you.
Carrie Jacobson: All right. Thank you.
Jane Walstedt: Melissa, do we have another question?
Coordinator: Yes, our next question comes from Elizabeth Goldsmith. Please go ahead.
Jane Walstedt: Thank you.
Elizabeth Goldsmith: Hi. This is Elizabeth Goldsmith. I'm a Professor of Personal Finance at FSU and one of the mentors. And I love Roth IRAs, so I'd reinforce that.
But I wanted to let you know I've got a $345,000 grant--a big one--from FINRA. And here's what we're studying, and we’ll know the answer this summer. But I thought I'd ask all of you what you think we will find in a nationwide study.
But we're studying why are some households better at wealth accumulation than others, even given similar incomes and circumstances.
In other words, why are some more expert than others? Do you think it's family upbringing or their style or what do you think distinguishes households at this?
Lisa Featherngill: This is Lisa. I go back to the comment I made earlier about family values. Usually the people I find that are the best savers had parents that were really good savers. I also find the same thing with investing. People who are the most conservative are the ones whose family is most conservative.
Actually the people that I find are the most conservative are my oldest clients, who actually lived through the Depression and saw what their family went through and feel like they’ll never have enough money even if you couldn't fathom spending the money that they have.
Elizabeth Goldsmith: Yes.
Nancy Granovsky: Liz?
Elizabeth Goldsmith: Yes?
Nancy Granovsky: This is Nancy.
Thanks for asking that question, and congratulations on the FINRA grant. I think you're going to do a worthy study.
I'm thinking that in addition to what Lisa has just said, there may be some other aspects of it besides family background.
I think it may be dependent also upon when people began that wealth accumulation process and also what phase of the business cycle or economic cycle the country was in when they did this.