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Wealth Health Managing Director Rich Coppa on what to consider when converting your 401(k) to Roth 401(k).
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Hard to match.
Meanwhile -- new options on the books for you and your nest egg in 2013 but should you take advantage of them.
Well help managing director rich -- joins me now with the latest are so what we're talking about here.
Is conversion of 401K.
Is not.
Rocks.
Not not the hiring -- -- -- 401K.
Writing the taxes up fried you say.
The option is on the table today should you take it.
Well I think that's that's a loaded question is a lot of factors to consider of course when -- when converting a 401K.
To a -- 401K this is new news because this is part of the tax relief access act that just came in January 1 this year coming just a as an aside getting going to be tax relief let me tell you gonna pay a huge tax up for a while that's the issue and in the issue is whether or not you wanna pay the tax on the conversion so.
You know in the past you had to be 59 half for or leaving your job before you can convert a 401K to a Roth but now.
Anyone regardless of your -- can convert your 401K balance to a Roth 401K.
The key issue is that your employer has to offer the Roth 401K and they have that provision and a plan.
Allowing an in plan conversion.
Our rates -- -- Europe -- clients aren't necessarily taking advantage of this why.
You know my clients whether it was a Roth IRA conversion -- -- 401K conversion a lot of people just don't want apartment the money and in -- one of these things you pay now or you pay later but.
Many people -- humidity and higher tax bracket in the future but look no one really knows so we do know for certain as you -- the tax today.
So and it's a lump sum vs taking distributions -- 401K.
It's -- -- be a big head and I think a lot of people.
Worry that you know why would I do that today when I don't know what's gonna happen down the road but let me tell you about my fear -- -- fear is that the government is gonna decide.
You know all that money acute accumulating in those retirement accounts we have some of that and we -- apply to the national debt is that it is that something we should really be worried about.
-- you know it's hard to know what's gonna happen in the future I think a lot of people do say that but what the government's doing by allowing us now remember it.
There's about 3.5 trillion dollars and 41 K plan so by allowing this they're estimating twelve billion dollars in taxes generated over the next ten years that's a lot of dough for the government right now.
And so.
You know that is one of the issues that the government would like to see the revenues increased as a result of this but the taxpayer has to.
Understand that they -- attacks on the conversion the good news is it ought to do full -- to do partial conversion are I says it used say that before doing this consider your tax bracket.
Absolutely and you have to forecast what bracket will you be in the future if you're gonna be a lower bracket in the future may be your you know your source of income and just gonna be investment income.
Then it's not a good idea if you're going to be -- higher tax -- in the future.
That's when you might say okay this makes cents -- -- high income -- now and you can't take advantage of Roth IRAs because of that income tax limitations.
This gives you an opportunity to have an asset that's grown tax rate because you might be able to convert your 401K.
To a Roth.
41 -- out of pocket costs.
Out of pocket costs look you don't want to take money out of the 401K plan for the taxes so you have to look at.
You know look at your your income tax you know -- projection what do you deductions what are your credits.
You might have to go out of pocket depending on the size of the conversion for that.
Tax bill so you have to make sure you have that tax ready if it's too much -- may -- split the baby in about what to do half.
And KeePass partial conversion partial conversion something that think about yet two main things I think are super important here that just compared to the -- higher because I think they'll be confusion.
You don't have the opportunity to pay the tax over two years remember back in 2010.
This is the final year for those who converted their raw ended -- is now all at once and the other big issue no -- characterization so there's no.
-- doing this you know no second chance once you do it.
It's done you -- the tax bill -- the market falls in value you leave your job.
Whatever their issues are you of the tax -- -- thanks for explaining that really appreciate it great job as always back up the --
