Virginia has some interesting opportunities with land conservation and tax planning.   This can be a complicated area, however, here are some general guidelines:

• You can donate land or a conservation easement to a land trust to preserve the natural, scenic, and historical integrity of your property.  The key here is that you still have the land to enjoy, but you agree not to develop the land.  This is a perpetual agreement.
• You receive  a federal income tax deduction subject to 50% of the donors’ adjusted gross income with a 15 year carry forward.   Farmers who received more than 50% of their income from agricultural activates can deduct up to 100% of their income.
• Virginia Income Tax Credit donors may be eligible for a Virginia income tax credit equal to 40% of the value of the donated interest for the year donated with a 12 year carry forward.  The limit is $50,000 a year.
• Virginia Tax Credit Market-You are able to sell your unused credits usually 70-80 cents on the dollar.
• Local property tax reduction-by giving up some land, your property assessment will be lower, hence lower property taxes.

There is a lot more to this and a good starting point to learn in  the Northern Virginia area is the Northern Virginia Conservation Trust at www.NVCT.org.  For other areas, you can begin your research at www.lta.org.  This is the umbrella organization for many of the land trusts in the US.

While much of the talk of Roth conversions have to do with analyzing the benefit for the current holder of the IRA asset, there is another aspect to consider that has to do with your overall Estate plan.  

In fact, If you are in a position where you do not need to distribute money from a IRA for living expenses, then convesion to a Roth IRA can makes sense from an estate planning perspective.  By paying the tax now, you will remove some cash from your estate that would be possibly be subject to a higher estate tax.  And finally, and most importantly,  you can transfer the asset to your children and your children will have an non taxable asset.  They will need to take the tax free distributions over their life expectancy.

Before you convert to a Roth, there are few guidelines that are important.

The first is  funds need to be available outside the IRA before you convert to pay for the tax.   Otherwise, if you pay taxes with the money from the conversion, you will be levied a 10% early withdrawal penalty if you are under 59 1/2.   The second guideline  is to  know the effect the conversion will have on your tax bracket.   The amount converted is treated as ordinary income and can easily push you up to a higher bracket.   The other consideration is your expectation of your tax bracket in the future.  The general rule is if you think you will be at a similiar or higher tax bracket in the future then it makes sense to seriously consider a conversion.

Let’s say you decide that the Roth conversion was a mistake, what can you do? 

 You can reverse the Roth conversion decision through recharacterization of the conversion.  By doing this,  the Roth conversion never happened.  You have until your tax filing deadline the year following the conversion to recharacterize the Roth conversion. 

Why would this happen?  Well, for one, the market sells off 30%  from when you converted  and consequently you ended up paying taxes on a higher amount than the current value.  You can then recharacterize , then reconvert at the lower value. 

Despite the “dog days” of Summer, it is not too early to think about 2010 and one of the key events in 2010.  No,  not the 2010 World Cup, or the Vancover 2010 Olympic games, or even the 2010 Census.   Rather, an even  more compelling event is whether  to convert or not convert your  IRA to a Roth IRA.

The benefits of converting a traditional or rollover IRA account to a Roth IRA will soon be available to those who have been shut out due to the income limits.  In 2010 the income limits for Roth IRAs will be lifted. So, if you are looking for a way to improve your financial position for the long term and help the economy out in the short term, then a Roth Conversion may be a right move for you. The basic idea behind a Roth conversion is to pay taxes now on the amount converted, and tucking that amount in a Roth account to grow tax deferred and at retirement, the funds can be withdrawn tax free. There is a 5 year holding period along with an age requirement of 59 ½ before you can make tax free withdrawals. An added perk in 2010 is the ability to spread the tax payment over two years (2011 and 2012).

With the lifting of the income limits, everyone with a traditional or rollover IRA – even those who are transferring assets from a company-sponsored plan like a 401K – should at least consider whether a Roth conversion makes sense. This is one of those financial planning decisions that do not easily fit into either the “don’t even think about it” or “what are you waiting for” categories. It really does depend on your personal circumstances and overall goals.

To take a step back, it is important to understand why a Roth can be a beautiful thing from a financial planning perspective. Here are few of the benefits:

* Tax Diversification – You’ll know a certain part of your account won’t be taxed when withdrawn.

* Portfolio Management – In developing your diversified portfolio, you can position your Roth investments somewhat more aggressively since the out-performance of this account relative to your other assets in a diversified portfolio will not be taxed.

* Flexibility – There are no required minimum distributions, allowing for increased cash flow flexibility at retirement.

* Estate Planning – You can pass this asset to heirs who will not need to  pay taxes on withdrawals. Keep in mind, though, Roth beneficiaries do have to take distributions across their life expectancies and Roth assets are still included in the decedent’s estate.

* Possible Tax Savings – If you think you will be at the same or higher tax bracket when you retire, you may save on taxes.

* Market Opportunity — The idea here is to tax the seed, not the harvest. Convert when the market is lower with the expectation that the market will recover over the long term horizon.

Sounds great, huh? But, does it make sense for you? The next few posts will drill down on specific hypothetical examples to help you sort it out for your situation.