New software analyzes conversion to Roth IRA

by Karen E. Culp

SBJ Staff

The Roth IRA was a source of inspiration for one Springfield software company. Computer Management Associates has developed software that will help financial planners determine whether it is in the best financial interest of a given client to convert his current IRA to a Roth IRA.

Computer Management Associates is a computer consulting firm in Springfield. The two partners in the business are David Crockett and Lois Robinson.

Both worked to develop the software that is now copyrighted, Crockett said.

It was important that the company develop the software so that it would be available in 1998, the first year IRAs may be converted to Roth IRAs. If the conversion occurs in 1998, the income and tax burden from the traditional IRA can be spread over four years, Crockett said. In 1999, 2000 and 2001, the software will have to be updated, and following 2001, the last year for conversions, it will be obsolete, he added.

The difference between the Roth IRA and traditional IRAs is that the Roth IRA is "back-loaded" while the traditional IRA is "front-loaded," said Cary Jones of Baird, Kurtz and Dobson. With a traditional IRA, if an individual makes a $2,000 contribution, then he or she deducts $2,000 from his or her taxable income. With the Roth IRA, there is no deduction, he said. Whatever the IRA earns is also not taxable, Jones said, another advantage to that type of IRA. When a traditional IRA is used, tax on its earnings will be owed when the money is drawn out of the account. Contributions to any IRA cannot exceed $2,000 in any tax year per taxpayer.

Whether or not it is to an individual's advantage to convert a traditional IRA to a Roth IRA is what Computer Management Associates' software intends to point out. The software is designed to include four financial products, Crockett said.

One of those products is life insurance to cover the tax penalty that will result from not keeping a Roth IRA for five years, Crockett said.

"If you die within five years, you'll have to make allowances for paying those federal penalties, so the software allows for life insurance to be sold to you to cover the penalties," Crockett said.

The software is designed to be used with Windows 95. It takes basic information from an individual, including his adjusted gross income, number of dependents, filing status, total amount of money already in an IRA, the already-taxed portion of that amount, anticipated growth rate and estimated increases in tax rates, and calculates what the Roth IRA's financial advantage will be for that individual.

What makes the software unique to any other type of information available on the Roth IRA is that it takes only a few minutes to change a value and subsequently change the entire profile, Crockett said.

"This is the only one I've seen like this. With this software you can essentially do in 10 minutes what would normally take six hours of calculations," Crockett said.

For example, the program requires that a value be assigned to the IRA's anticipated growth rate, a figure that can be "played with until we get something they like," Crockett said.

The company began working on the software last spring, anticipating that the Roth IRA would only be used as much as was intended if software like this were available to help analyze the feasibility of converting, Crockett said.

The company's intention is to sell the software to the major financial institutions in the country and to keep the price low enough to permit those large companies to buy a copy for each of their sales representatives, who, for large corporations like American Express, may number in the thousands or tens of thousands.

Crockett has already had several favorable reviews from financial planners; the software became available for purchase only recently, when the company completed its patent applications.

The product will soon be available for sale over the Internet; patrons will be able to download the software for a fee over a series of sessions, Crockett said.

"This is what people have to have to make a rational decision on whether to convert to a Roth IRA," Crockett said.

If his company had not designed the software, someone else would have, he said. The company was able to develop such a cutting-edge product because of the combined talents of its 17 employees, he said.

"There are lots of people out there with tremendous programming skills, and there are lots of people out there with great ideas for products, and I got lucky in that I have access to both good ideas and great programmers," Crockett said.[[In-content Ad]]