New Law Allows 401(k) Pan Account To Be Converted To A Roth 401(k)

Pursuant to The Small Business Jobs Act of 2010, Solo 401(k) Plan participants or employees can now convert of a traditional 401(k) or 403(b) account to a Roth 401(k) in the same plan if their employer offers one. Converting a traditional 401(k) account to a Roth 401(k) account will offer the same one-time tax perk as Roth IRA conversions in 2010. End Quote

(1888PressRelease) October 11, 2010 - The Small Business Jobs Act of 2010, signed by President Obama contained a little-known provision, which went to affect on Sept. 27, 2010, allowing for the conversion of a traditional 401(k) or 403(b) account to a Roth in the same plan if their employer offers one. However, the 401(k) Plan participant (employee) must pay income tax on the amount converted. The new law covers Solo 401(k) Plans offered by the IRA Financial Group as well as multiple employee 401(k) Plans.

Converting a traditional 401(k) account to a Roth 401(k) account will offer the same one-time tax perk as Roth IRA conversions in 2010. A 401(k) Plan participant who elects to make a Roth conversion this year can choose between paying the tax this year or paying tax on 50 percent of the income in 2011 and the second half in 2012. In future years the tax must be paid in the year of the conversion.

The advantages of making a Roth 401(k) conversion are that distributions in retirement from accounts at least 5 years old are tax-free. The downside for making the conversion is that the tax must be paid on the fair market value of the 401(k) account at the time of conversion. In contrast, traditional 401(k)s give you a tax break in the year you save for retirement, but income tax is due upon withdrawal.

401(k) Plan participants who convert to a Roth 401(k) in 2010 have until the due date of their federal tax return, including extensions, to decide in which year or years to pay the income tax. Estimated taxes may be due on the amount converted. Those who fail to pay estimated taxes could incur an underpayment penalty at tax time.

In past years, rollovers to Roth accounts were limited to Roth IRAs. Those under age 59 ½ could generally only convert after leaving their job. The new law also permits government 457(b) plans to add a Roth option beginning in 2011.
Using a Roth 401(k) has several clear benefits over using a Roth IRA as a retirement tool. Firstly, 401(k) Plans have much higher contribution limits than IRAs. Employees can save up to $16,500 in a Roth 401(k) in 2010, or $22,000 if they are age 50 or over. Roth IRA account owners can contribute just $5,000 each year, which jumps to only $6,000 after age 50. In the case of a Solo 401(k) Plan, contributing to a Roth 401(k) also allows you to take advantage of profit sharing contributions made by your company on your behalf, which can equal 25% of the compensation paid up to a combined maximum amount of $49,000 or $54,500 after the age of 50.

To learn more about the new 401(k) Roth conversion rules and how a Solo 401(k) Plan can benefit you, please contact the IRA Financial Group at 800-472-646 or visit their website at www.irafinancialgroup.com.

About IRA Financial Group, LLC

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, uch as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen Reid & Priest LLP..
IRA Financial Group is the market's leading "Checkbook Control" Self Directed IRA and Solo 401(k) Facilitator. We have helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment. To learn more about the IRA Financial Group please visit our website at www.irafinancialgroup.com

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