retirement plans to make “in-plan Roth conversions.” They can move savings from traditional, before-tax 401(k), 403(b), or 457 plan accounts to Roth plan accounts without a distributableevent (such as death, disability, or reaching age 59½) as long as the employer offers bothoptions.
In general, traditional contributions to retirement plan accounts are made with before-tax dollarsso they reduce current income. Any earnings in these accounts grow tax-deferred until assets arewithdrawn. Generally, that’s at retirement. Distributions from Traditional accounts generally aretaxed as ordinary income.
Contributions to Roth retirement plan accounts are different. They are made with after-taxdollars so they do not reduce taxable income today. Any earnings in Roth accounts grow tax-free. Distributions from a Roth account are tax-free and penalty-free as long as the five-year participation period requirement is met and the distribution is taken for a qualified purpose, suchas reaching age 59½ or becoming disabled.
How do I decide whether a conversion is right for me?
The decision about whether to convert a Traditional workplace retirement plan account to a Rothworkplace retirement plan account should be based on criteria that are similar to the criteria usedwhen deciding whether to convert a Traditional IRA to a Roth IRA. These include:
Tax brackets now and in the future:
If you think you’ll be in a higher tax bracketduring retirement than you’re in today, then a Roth conversion may make sense.
Assets available to pay the taxes due:
When you convert from a Traditional to a Roth plan account, you will owe taxes on the assets you convert. If you have non-retirementsavings available to pay these taxes, a Roth conversion may be a good choice.
Legacy and estate planning goals:
Roth 401(k) account offers estate planningopportunities that suit your needs, conversion may be a good choice.
Income needs during retirement:
If having a source of tax-free income to supplementtaxable income during retirement could boost retirement income, then a Roth conversionmay make sense.
Source: Investment News
It’s important to recognize a retirement plan conversion is different from an IRA conversion.Plan conversions do not allow a do-over while IRA conversions can be revoked for a certain period of time. If you have any questions about this topic, please give us a call.
Weekly Focus – Think About It
Optimism is the faith that leads to achievement. Nothing can be done without hope andconfidence.--
Helen Keller, the first deaf and blind person to earn a Bachelor of Arts degree
Best regards,Your Monarch Team
903B Murfreesboro Road • Franklin, TN 37064 • 615-614-0070www.monarchadvisorygroup.com