New Rules To Expand Conversions To Roth Accounts

Prior to the start of this year, conversion to Roth accounts was limited to workers

who had modified adjusted gross incomes at $100,000 or less per year. Now, the option to convert regular IRAs into Roth IRAs is available to almost everyone, with some 401K account owners included.

Workers aged 59 and a half and up who contribute to 401Ks may soon be able to convert the savings in their accounts into Roth 401Ks if their employers offer it. At present, investors of 401Ks who've been contributing to their accounts for a specified period may only be able to convert employer contributions.

Participants who opt to convert to Roth accounts from conventional tax-deferred plans usually do so to pay taxes on contributions as early as possible, which may help them save more money on the assumption that taxes will be higher in the future, although withdrawals from Roth 401Ks and IRAs are currently tax-free.

Today's regulations governing the management of 401Ks prohibit investors from converting to Roth accounts unless they withdraw their 401K money first, and then give it a rollover into a Roth IRA. There are also numerous restrictions as to access to 401K money, including the ability to rollover your 401K only after you've left your employer.

The conversion proposal is contained within the Small Business Jobs and Credit Act, which has already received the approval of the Senate, and awaits implementation by Congress in the meantime. This provision, which will take effect right after its signing into law, will allow qualified investors to convert the assets in their traditional 401Ks into Roth 401Ks, provided the employer offers the Roth 401K option and the plan allows the kind of distribution this conversion requires. The proposal also pushes for Roth 401K conversions for workers who participate in the 457 and 403B plans.

by: Carina Smith

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