When converting from a traditional IRA to a Roth IRA, you pay taxes on the front end in the expectation you will save money down the road by avoiding taxation on withdrawals in retirement.
The problem is that figuring out whether you are better off paying taxes now or later is complicated. There is no easy answer, and it's complicated by the uncertainty over the future of income tax rates in this country. My best guess is that taxes are going up; the only questions are when and by how much.
In my case, the plan is to dig into the numbers soon after Jan. 1 and consider converting a portion of my current traditional IRA accounts into Roth IRAs a little bit at a time.
4. Clean up my portfolio: As a financial planner, I urge clients to keep it simple when it comes to investing. As much as possible, I say, consolidate accounts at a single investment custodian like a mutual fund family or online brokerage and stick to low-cost index mutual funds or exchange-traded funds.
For the most part, I follow that advice. Most of my retirement funds are held at a single, well-known firm and are invested primarily in dirt-cheap index funds offered by Fidelity or Vanguard or Vanguard exchange-traded funds.
However, there are a couple higher-cost, actively managed mutual funds that I can't seem to bring myself to eliminate from my family's portfolio. One is a small-cap growth fund that has done well overall since I've owned it, but that has lagged its peers the past couple years and features a hefty 1.32 percent expense ratio. I know it's got to go, but I just haven't been able to pull the trigger and replace it with the type of fund I'd recommend to clients.
Now is the time to do it.
5. Make more and pay down debt: As the owner of a small business startup, my income these last couple years has been unpredictable and less than I would like. The good news, however, is that revenue from my business has been growing at a steady rate since I opened shop nearly three years ago.
After surviving the toughest economy of my lifetime, I'm optimistic about my business outlook for 2010 and confident my revenue will continue to increase. Assuming I can hold expenses steady (another financial resolution), I plan to dedicate any additional income to paying down debt aggressively.
Yes, even financial planners sometimes borrow money. In my case, there's a mortgage, student loan, auto loans and business debt. And today, I resolve to begin making extra principal payments and putting those payments on auto pilot to ensure I live up to what I've promised here.
There you are. I won't just be giving advice to others in 2010; I'll be taking some as well.
Happy New Year.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at email@example.com.