The remaining months of 2010 may prove an uneasy time for tax and financial planning – with the status of Bush-era tax cuts and the possible return of the estate tax hanging in the balance while a “lame duck” congress still has the wheel. However, the Boston Globe reports the end of year holds some good news for retirement investors – thanks to new rules put into effect by the small business bill passed last month making Roth IRAs a more attractive option.
While traditional retirement accounts allow you to invest pre-tax dollars, paying the tax on withdrawals during retirement; the opposite is true for Roth accounts. With a Roth account, you will pay the tax upfront, but the funds are freely accessible during retirement. The ability to draw money from both taxable and nontaxable accounts allows a retiree to better control tax liability.
The new small business law includes a provision that allows you to roll over funds from a 401(k) into a Roth account, without incurring the associated penalty (10%) for doing so before age 59.5. The conversion process will still be subject to income tax, but there law also includes a special tax break available if you make the switch this year. To qualify, however, the funds must convert before year end, so don’t wait until the last minute to make this decision.
Of course, I would recommend that you consoult with your financial advisor about whether a rollover makes sense for you. Although I am not a financial advisor, I do work with some good financial advisors in Salt Lake City, Ogden, and throughout Davis County, Utah. I would be happy to provide a name that would be a good match for you. And, when considering what to do with your retirement assets, it is probably a good time for you to check over your beneficiary designations and your basic estate planning documents (e.g., your will, trust, powers of attorney, and health care directives/powers of attorney).