Baird Offers Financial Resolutions for 2010

Evaluating Roth Conversion Opportunity, Maintaining Estate Planning Flexibility Top the List

MILWAUKEE, Jan. 14, 2010
2010 appears to hold both opportunity and uncertainty for investors. With new rules allowing high earners to convert to Roth IRAs and continued uncertainty surrounding the estate tax, investors would be wise to use the New Year as an opportunity to fine tune their financial plans, according to Tim Steffen, CPA, CFP®, Financial & Estate Planning Manager for Baird’s Private Wealth Management Group.

“The New Year provides an opportunity to define a few important financial goals for the coming year,” Steffen said. Following are five resolutions he suggests making in 2010:
  1. Review Your Retirement Plan – For many, a 401k plan is not only one of their most significant financial assets, but also their only vehicle for retirement savings. Yet a significant setback in the markets over the last few years has caused many retirement plans to veer off course. Said Steffen, “Take the time to do the long-term retirement planning to determine how much money you are going to need in retirement and how well your current resources can match that need.” Investors should consider both their asset allocation and savings rates. “With incremental savings and careful investment planning, most people will have time to put their retirement plans back on track,” he said.
  2. Consider a Roth Conversion – Related to the first goal, Steffen believes the long-term benefit of converting traditional IRAs to Roth IRAs will make sense for most investors, although there are some significant obstacles. The popular Roth IRAs were introduced in 1998 and offer the opportunity for completely tax-free withdrawals, a potentially significant long-term advantage over traditional IRAs that face taxes at withdrawal. Roth IRAs also offer additional benefits because they do not require withdrawals after age 70½ unlike traditional IRAs.

    “This is the most significant retirement planning opportunity we’ve seen in years,” Steffen said. “Despite the fact that this is compelling from a tax perspective, we believe many investors will wait on the sidelines. For many, there are still too many unknowns including future tax rates and how long they will be able to keep the money in the account in order to make the conversion worthwhile.” Steffen believes one of the most significant hurdles will be the tax liability due on conversion – not an insignificant sum for six and seven figure conversions. As an incentive for conversions made in 2010, investors will be allowed to spread the income recognition over the next two years, easing the impact of this potentially large liability.

    For additional information about the upcoming Roth conversion opportunity for high earners, Baird has developed a backgrounder with a number of hypothetical examples. Download Enhanced Roth Conversion Opportunities.
  3. Prepare for Higher Taxes – Be prepared for anything when it comes to taxes in 2010, according to Steffen. “We are anticipating tax increases to begin in 2011. In the meantime, stay flexible,” he said. “Instead of the standard tax mantra of maximizing deductions and deferring income, we now advise people to consider deferring deductions and accelerating income. For example, pushing year-end charitable gifts planned for 2010 into 2011 may prove to be a worthwhile strategy. If you are a business owner, you may want to try to book receivables into 2010 instead of pushing them into 2011 if it means a lower overall tax liability.”
  4. Re-Consider Your Asset Allocation and Risk Tolerance – The significant volatility of the last few years meant many portfolios strayed from their original allocations and now need rebalancing. Other investors who abandoned their allocations and missed the recent rally need to think carefully about how they regain equity exposure. Said Steffen, “It is a perfect time to reconsider your appetite for risk. But when you do, consider the full cycle including both downturn and rebound. Despite what you may have heard, diversification is not dead. Well diversified investors who held assets in both stock and fixed income assets weathered the downturn better than those who didn’t.”
  5. Review Your Estate Plan – To the dismay of most observers, Congress ended its 2009 session without resolving the frustrating uncertainty surrounding federal estate tax rules. As a result, for the first time since the modern version of the federal estate was enacted in 1916, the current year began with no federal estate tax. According to Baird Senior Estate Planner and Former IRS Attorney Richard Behrendt, under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Congress gradually increased the estate tax exemption from $1 million in 2002 to $3.5 million in 2009. As of Jan. 1, 2010, the estate tax is temporarily repealed for one year, but the changes under EGTRRA expire on December 31, 2010 and the exemption is scheduled to revert back to $1 million in 2011.Many observers expect new estate tax legislation will be enacted sometime this year.

    Given the uncertainty, Behrendt recommends consulting with an estate planning attorney to make sure your estate plan has adequate flexibility to weather whatever may come. He also recommends gifting and wealth transfer techniques that take advantage of today's “perfect storm” combination of depressed asset valuation (equities and real property) and historically low interest rates. Some of these techniques include: grantor retained annuity trusts (GRATs), installment sales to grantor trusts (ISGTs), and low-interest loans to family members.
About Private Wealth Management
Using a consultative approach, Baird’s more than 650 Financial Advisors deliver comprehensive wealth management solutions to clients nationwide. They have the resources to oversee the complete financial picture for high-net-worth families and individuals with complex financial needs. Baird Financial Advisors managed and oversaw more than $53 billion in client assets as of Sept. 30, 2009.

Leveraging a network of specialists, Baird Financial Advisors also work closely with business owners and corporate clients to address the specific needs of corporate executives, benefit coordinators and those in need of business transition planning.

About Baird
Baird is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Established in 1919, Baird has more than 2,400 associates serving the needs of individual, corporate, institutional and municipal clients. Baird oversees and manages client assets of more than $73 billion. Committed to being a great place to work, Baird ranked number 14 on FORTUNE’s “100 Best Companies to Work For” in 2009 – its sixth consecutive year on the list. Baird’s principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s private equity operations. For more information, please visit Baird’s Web site at

For additional information contact:
Amy Nutter
Baird Public Relations