Partial Roth IRA Conversions: A Strategic Approach

Many young clients start contributing to Roth IRAs early in their careers, but they often find themselves unable to continue once they reach higher income tax brackets. While contributing to a Roth IRA (or even a Roth 401(k)) is generally a good strategy for tax-free growth, it’s not always the best choice for everyone. Roth contributions and conversions come with immediate tax implications, and for some, a large Roth conversion can push their taxable income into a higher tax bracket, making the transaction counterproductive.

However, Roth conversions aren’t an all-or-nothing decision. As financial expert Michael Kitces explains, a partial Roth IRA conversion can be a smart way to manage taxable income. This strategy allows you to convert portions of your traditional IRA into a Roth IRA over several years, filling up the lower tax brackets gradually. By being mindful of future tax obligations and current marginal tax brackets, this approach can help optimize your tax situation while avoiding a significant tax hit in a single year.

A Look at Trump’s Business Ventures

The Wall Street Journal recently published an intriguing article about Donald Trump’s business dealings, particularly focusing on his misadventures with the Taj Mahal casino in the 1990s.

Trump’s approach to the casino was unconventional, to say the least. He purchased a class of shares that gave him voting control, even though his equity stake was minimal. From this position, he pushed through a service contract guaranteeing him $108 million over five years. He convinced casino regulators that the company could only secure funding if he remained involved, which this contract ensured.

However, when the company faced financial difficulties and its stock plunged, Trump seized the opportunity to buy Resorts (the parent company of the Taj Mahal) at just above the reduced share price. He explained that construction lenders were reluctant to continue funding due to the high cost of his service contract.

While such transactions aren’t unique to Trump, his signature “Trumpiness” makes them all the more notable. His deal-making style offers a glimpse into the complexities and risks of corporate governance and the fine line between strategic maneuvering and self-interest.

The Wild West of Chinese Stock Markets

As the S&P 500 closed slightly below 0% for 2015, China’s stock market wasted no time ringing in the New Year with a dramatic 7% drop within just four hours. The Chinese market was subsequently halted, with certain securities remaining frozen for large investors (those holding more than 5%) until January 8th—possibly longer.

Much like last summer, the Chinese government has stepped in to support share prices using government funds. The situation in China’s stock market reminds me of the U.S. in the late 80s and early 90s when individual investors dominated the market with penny stocks and “pump and dump” schemes. Right now, China’s market feels like the wild west, where volatility and government intervention are the norm, and investor behavior can be unpredictable.

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