With the recent passing of H.R. Bill 5297, 401(k) participants of eligible plans can immediately roll over all or part of their account balances into a Roth 401(k) Plan. To allow for this the plan will need to be amended. Consideration should also be made as to the viability of allowing Roth conversions within the Plan as well as allowing for Roth deferrals. If the rollover is made this year, the participant can elect to pay the tax on the money rolled over in equal parts in 2011 and 2012 helping to ease their tax burden. These rolled over funds will earn tax-free investment income and will not be taxed when the participant receives a distribution. Depending on the participant’s tax bracket and future tax bracket this could reduce their tax liability. Participants considering this should ask themselves:
- Can I afford to pay the taxes over the next 2 years?
- Do I anticipate being in a higher tax bracket when I retire?
- Do I feel confident that the taxes I pay now would be less than the taxes I would pay later if I did not convert funds into a Roth 401(k) resulting in a financial benefit to me?
Contact your ACI Plan Administrator if you would like more information.
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