Name: John Smith, Financial Advisor

Waddell & Reed, Inc. 09/2009

Important Disclosures

This information is for educational purposes only, and is not intended as investment or tax advice.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus containing this and other information for the mutual funds offered by Waddell & Reed, call your financial advisor or visit us online at www.waddell.com. Please read the prospectus carefully before investing.

Roth IRA

Why Should You Consider Converting to a Roth IRA

Now?New tax laws in 2010 make everyone with

an IRA eligible

Taxable IRA balances may be currently reduced

Currently historically low income tax rates

Roth IRAs allow for tax-free withdrawals during retirement

How Can a Roth IRA Help?

Protection against potential future tax rate changes

Tax diversification

Withdrawal flexibility – No Required Minimum Distributions

Legacy planning – potentially pass tax-free to beneficiary(ies)

Key Features of a Roth IRAIRA Roth IRA

Contributions Pre-tax, deductible (if eligible) After-tax

Growth Earnings grow tax-deferred Earnings grow tax-deferred

Early Distributions, pre 59 ½

Taxable plus 10% penalty*Contribution tax-free, earnings taxable plus 10% penalty*

Normal Distributions, after 59 ½

Taxable Tax-free

Conversions Not Applicable Tax-free if held to 59 ½ and for 5 years

Required Minimum Distributions

Begin at age 70 ½ No required during owner’s lifetime

* Certain exceptions apply to the age 59 ½ early withdrawal penalty.** If you convert after the age of 59 ½, the converted amount is available tax-free regardless of the holding period.

Conversion Conversation

Conversion Rules Prior to 2010

Must have a modified adjusted gross income (MAGI) of less

than $100,000

Must file as Single, Head or Household, or Married Filing

Jointly

Persons who file as Married Filing Separately cannot

convert

Note: Converted amounts are not included in your MAGI

when determining eligibility

Conversion Rules 2010 and Forward

Everyone is eligible to convert, regardless of income or

filing status

If conversion occurs in 2010- may choose to report taxable

income:

Half in 2011 and half in 2012

OR

All in 2010

If conversion occurs 2011 and forward- must report the

taxable income in the year of the conversion

Note: Income limits remain for regular Roth IRA

contributions

Are You a Conversion Candidate?

Younger Professional (age 22-45)

Pre-Retiree & Young Retiree (age 46-70)

Have 5 years or more before you will need to start drawing

regular income from your retirement account(s)

Believe that personal tax rates will be equivalent or higher

during retirement years

Desire to reduce or eliminate future Required Minimum

Distributions

Want to pass assets tax-free to beneficiaries

Important Factors For You to Consider

Current and future income tax rates

All retirement accounts and income sources (pre-tax and

after-tax)

Current age and life expectancy

Anticipated spending needs during retirement

Ability to pay the taxes due on a conversion from a source

other

than your IRA

Age, life expectancy, and possible tax rates of your

beneficiary(ies)

Roth Distribution Rules

Are not includible in gross income.

Is one made after the satisfaction of a five-year holding period

and upon the attainment of age 59½, death, disability or for a

qualified first-time homebuyer ¹.

The five-year holding period for converted amounts begins

with the first day of the first year for which the Roth IRA

holder completes the conversion.

Each conversion has its own five-year holding period.

Do not factor into IRS calculation to determine if all or a

portion of your Social Security benefits are taxable1 Qualified first-time homebuyer distributions are limited to a lifetime maximum of

$10,000.

Qualified Distributions

Rules for Your Beneficiary

The beginning of the five-year period is not re-determined

when the Roth IRA holder dies.

The five-year period for a beneficiary of a Roth IRA is

determined by the date of the original Roth IRA holder's

five-year period.

A spouse beneficiary who transfers the decedent's Roth

IRA into his or her own Roth IRA determines the five-year

period based upon the first date of contribution (or

conversion if processed first) to all Roth IRAs in his or her

own name.

Qualified Distributions

Are you a possible candidate?

Example: John

Has $60,000 IRA Rollover to convert to Roth IRA in 2010

28% Tax bracket currently, expects tax bracket to rise in the future

Has cash reserves to pay tax bill in 2010 or opt to split taxes between 2011 and 2010

Illustration assumes a return of 8% on his investments

Illustration assumes tax rate will remain at 28%

Example: John

When Converting Might Not Be for You

• You do not have the ability to pay the tax bill for the Roth conversion from a source outside of your IRA

• You are currently retired and drawing a significant income stream from your IRA accounts

• You believe your tax bracket is likely to drop during your retirement years

• The conversion will push you into a higher tax bracket than you would want

• You have named a charity as the beneficiary of the IRA. Qualified charities are exempt from income tax, therefore no income tax will be due at your death

You Have a “Do Over”

A Roth conversion can also be reversed under the Roth recharacterization rules. If completed in a timely manner, its as though the conversion never occurred.

You transfer back any assets that were converted from a traditional IRA to a Roth.

If you file your taxes by April 15, the IRS gives you an automatic date of October 15 of that year to recharacterize. You will need to amend your Form 1040 by the October 15 deadline to create the recharacterization.

Any amounts reversed back must be adjusted for gains or losses that occurred during the intervening period.

No taxable income for the conversion is reported.

NOTE: If you filed an extension for your IRS Form 1040, your recharacterization deadline is the date of your IRS-approved tax filing deadline. The IRS deadline may be August 15, September 15 or potentially October 15.

Strategies to Consider

Convert early in the year

Allows for a longer period of tax-free growth

Extended “do-over” period; you generally have until 10/15 of the following year to recharacterize to a traditional IRA

Make partial conversions over a number of years to spread tax hit

Convert old qualified plan money from a previous employer’s retirement plan to a Roth

Perhaps fund your IRA for 2009 as a non deductible contribution

Action Items

Gather account statements from all of your retirement accounts

Review your IRS Tax Filing Forms- specifically Form 8606 for non deductible IRA contribution amounts

Meet with your financial advisor to help you determine if this is a good strategy for you

Meet with your tax professional to get a better estimate of your tax liability

Consider how and when you will pay any taxes on the conversion

Waddell & Reed Financial Products and Services

Waddell & Reed Financial Products and Services

Investment solutions designed to meet your objectives

Personal financial advisor to educate you regarding investment choices

Personalized comprehensive financial planning

Insurance coverage to protect you and your family

Life Cycle Stages

Accumulation

Distribution

Preservation

Transfer

Why Should You Consider A Financial Plan

Make informed decisions

Be flexible in your investment choices

Coordinate your Financial Planning Team

Avoid potential future traps

Have enhanced family communications

Measure your progress

Work toward your life goals

Types of Investments

Money Market and Fixed Income Funds

Domestic and International Equity Funds

Growth and Income funds

Asset Allocation FundsAn investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Generally, as interest rates rise, bond prices fall. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets.

Thank You