| Richard Malamud, professor of accounting and law, had
his article, “Start the tick-tock of the five-year clock by contributing
to a Roth,” published in the Dec.1 issue of Spidell’s Elder Client
Planner. The article addresses the tax advantage of opening a Roth IRA
earlier then normal so that it can be used as a vehicle for short-term
investments when nearing retirement age. “With a Roth IRA, you pay tax on the front end, not when you take out distributions at retirement,” says Malamud. “You have to have opened a Roth for five years and be 59-and-a-half years old to receive distributions, but there’s nothing to stop investors in their early 50s from using a small amount like $1,000 to open an account and then using the account as a short-term tax-free investment account when they’re nearing 59-and-a-half years old, which is when you can receive distributions without penalty.” Simply put, there is no stipulation in the tax code to prevent investors in their 50s from opening the account and leaving it alone for a few years. It can then be used to make investments that are never taxed again instead of incurring taxes on the amount in the account after it has presumably increased in value once they’ve reached the age of 59-and-a-half. The article was geared toward older investors and their advisors. Spidell Publications produces a number of such newsletters and they are widely regarded as the authority on California taxes. Malamud has published several articles with the publishing house, breaking down similar complexities and ways to take advantage of the tax code. Explaining the advantages of this use of the Roth for tax-free, short-term investments for people in their 50s, he explains in the piece, investing in Treasury or similar CD savings accounts that deliver a four to six percent interest rate would offer the taxable equivalent of 6.785 to 10.177 percent in California if the investment had been taxable. “The thing that’s interesting is that you don’t see a lot of articles like this in Money or Kiplinger’s or the L.A. Times,” he says. “The reason is that the articles need to be geared toward a large audience. I mean, this article I wrote really only benefits investors in their mid-50s. Of course, those who are younger could open a Roth, but still won’t be able to take advantage of these benefits until they are in their late 50s. So national publications often do little more than explain the rules of investment accounts, because everything else is too specific and doesn’t speak to a large enough audience.” |
