All of the bickering in Washington over the Fiscal Cliff actually resulted in a new and interesting option for 401k (457, 403b, etc.) savers -- the ability to convert an existing company-sponsored retirement plan into a Roth retirement plan.
Here's how it works: Prior to the Fiscal Cliff negotiations, only "distributable" company retirement plan assets could be converted into a Roth. Now, the Feds are allowing anyone with a plan balance to convert those dollars into a Roth-based account. Your employer must already offer (or begin to offer) a Roth option, and allow for the conversion. Check with your HR representative to find out the details of your particular plan.
Rarely does the Federal government offer we tax payers a "deal" on anything; so what's the rub you ask? Upon conversion, the amount redesignated into tthe Roth-based account will become taxable, thus creating the potential revenue windfall for the IRS. In fact, Congress has estimated the take could be as high as $12 billion if enough savers make the conversion.
As financial advisors, we are always trying to assess if a certain strategy makes sense for our clients, and in this case, we cannot endorse this move without first looking at your overall financial picture. If you would like Infinium to review your situation, please contact us or schedule an introductory phone call by clicking this link:
This article summarizes the latest changes to investor's 401k Roth Converstion option:
Mark S. Starosciak, Managing Partner & Financial Advisor
Infinium Investment Advisors
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