Roth401k conversion

[Brownslave688]

Ok so I read an article a few months back in USA today. The article basically said if your employer offers a Roth 401k they must offer you the ability to transfer all your traditional 401k money into that Roth. Of course you have to pay the taxes that were deferred. What I'm asking is has anyone done this or does anyone know how to go about doing it?

 

[UpstateNYUPSer(Ret)]

Why would anyone want to do this?

 

[Jackburton]

Why would anyone want to do this?

Because they might have had, for example, FMLA or workman's comp for the year that significantly reduced their taxable income for the year. They can convert their traditional to the Roth in a lower tax bracket for the year without penalty.

 

[Brownslave688]

Seriously? Employees that have a small amount in the traditional but are now putting all contributions into the Roth option.

 

[SnowCitizen]

It's funny to see a thread about this today. I actually emailed Prudential over the weekend. Here is what I asked and here is the response I got.

Hello. I read the law was changed this year to allow pre-tax 401k assets to be converted to Roth 401k assets. I was wondering if you have any idea when this will be available, if at all. Thank you

Thank you for contacting Prudential Online Retirement Center.

Please contact a Participant Service Representative at the number below for assistance. Additional information is needed to review your request.

The reason I asked "if at all" is because the article I read made it sound like employers can offer this to you, but they don't have to.

I am too lazy to call right now. I am hoping that once the changes get sorted through there will be a simple process online to take care of it. Eventually I will call because I would really like to take advantage of it.

 

[purplesky]

Ok so I read an article a few months back in USA today. The article basically said if your employer offers a Roth 401k they must offer you the ability to transfer all your traditional 401k money into that Roth. Of course you have to pay the taxes that were deferred. What I'm asking is has anyone done this or does anyone know how to go about doing it?

The Roth IRA is better for people that will be in the top tax brackets when they retire. You will be in a lower tax bracket(like most UPS hourlies) when you retire so use the traditional 401k to avoid taxes on all your overtime now while working. Bring your taxable income down now while its higher.

 

[kingOFchester]

Many of us do not know how much income we will have when we retire. There is also no way to know how the tax system will work when we retire. It is a gamble, for the most part, in guessing whether to put money in a Roth or Traditional. For me, with 20+ plus years away from retirement, I find it best to split my money 50/50 between Roth accounts and traditional. As I get closer to the end of the rainbow, I will evaluate my savings style.

 

[Brownslave688]

The Roth IRA is better for people that will be in the top tax brackets when they retire. You will be in a lower tax bracket(like most UPS hourlies) when you retire so use the traditional 401k to avoid taxes on all your overtime now while working. Bring your taxable income down now while its higher.

So u know what my taxes will be in 30 years? U must be from the future.

 

[PiedmontSteward]

Many of us do not know how much income we will have when we retire. There is also no way to know how the tax system will work when we retire. It is a gamble, for the most part, in guessing whether to put money in a Roth or Traditional. For me, with 20+ plus years away from retirement, I find it best to split my money 50/50 between Roth accounts and traditional. As I get closer to the end of the rainbow, I will evaluate my savings style.

I'm doing the exact same thing. Granted, I'm PT and only contributing 1% to each.. but hey, it's better than nothing.

 

[brett636]

The Roth IRA is better for people that will be in the top tax brackets when they retire. You will be in a lower tax bracket(like most UPS hourlies) when you retire so use the traditional 401k to avoid taxes on all your overtime now while working. Bring your taxable income down now while its higher.

What if the lowest tax bracket 20 years from now is 40%? Then you will wish you had saved in your Roth account rather than a traditional.

 

[Old International]

I switched my reg IRA to a Roth IRA, and spread the taxes out over two years. So far, the roth IRA has outdone the reg IRA, and with all my stock dividends going into the roth, I am hoping that the taxes stay up- since I have already paid the tax on the Roth, it seems to be a better choice right now.

 

[purplesky]

So u know what my taxes will be in 30 years? U must be from the future.

If you think your retirement income will be in the top tax bracket than do the Roth if you want. I work for the same company and same pay and I dont think we will be close to the top tax bracket in retirement.

Tax rates could be higher or lower. Who knows? I think they will be in the same ballpark relative to where they are today.

All I know is that if you work 10 hours of overtime you get killed with taxes so I would rather beat the tax man now and let the market do its thing over the next 30 years and put more investment to work.

I only know the present so I am saving on taxes now.

 

[purplesky]

What if the lowest tax bracket 20 years from now is 40%? Then you will wish you had saved in your Roth account rather than a traditional.

What if its 10%? What if we have a flat tax of 15%? Who knows? Why not make a choice now based off today and save on taxes now.

brett36 who would raise tax rates to 40% on the lowest bracket in 20 years? That sounds kind of extreme.

 

[brett636]

What if its 10%? What if we have a flat tax of 15%? Who knows? Why not make a choice now based off today and save on taxes now.

brett36 who would raise tax rates to 40% on the lowest bracket in 20 years? That sounds kind of extreme.

Looked at the national debt lately? Its been skyrocketing since the beginning of the century with its fastest level of growth starting in 2008. Eventually the math will force tax rates up. When politicians have to make a choice between cutting their re-election fund(read yearly government budget), raising tax rates on everyone, or letting our economy and currency slip into oblivion which option do you think they will choose?

 

[Brownslave688]

So u know what my taxes will be in 30 years? U must be from the future.

If you think your retirement income will be in the top tax bracket than do the Roth if you want. I work for the same company and same pay and I dont think we will be close to the top tax bracket in retirement.

Tax rates could be higher or lower. Who knows? I think they will be in the same ballpark relative to where they are today.

All I know is that if you work 10 hours of overtime you get killed with taxes so I would rather beat the tax man now and let the market do its thing over the next 30 years and put more investment to work.

I only know the present so I am saving on taxes now.

U just made my point for a Roth. U only know the present so just pay the taxes now.

The big advantage to a Roth for me comes in knowing all that money is mine. I don't have to plan around taxes. I know this could change but if it goes I believe all retirement tax advantages will be taken away so it won't matter.

Also we should all strive to be in a higher tax bracket come retirement. Between my wife and I I fully expect to retire with somewhere in the neighborhood of 6 million in investments. That won't include any business income or rental property income.

 

[UpstateNYUPSer(Ret)]

I am looking forward to being in a lower tax bracket when I retire.

 

[kingOFchester]

I switched my reg IRA to a Roth IRA, and spread the taxes out over two years. So far, the roth IRA has outdone the reg IRA, and with all my stock dividends going into the roth, I am hoping that the taxes stay up- since I have already paid the tax on the Roth, it seems to be a better choice right now.

Do you not use our 401k option? You also mention that the Roth is doing better then the Traditional, do you mean your return on investment is better? Are you retired? Just trying to get a handle on what you are saying.

If you are talking about your Roth account is out performing your Traditional, I can't see why you can't allocate your money into the same investments in both accounts.

 

[kingOFchester]

The future is not known.

To those that only use the Roth, there are a few issues to consider.

1) Taxes very well could go up from where they are today.
2) Just because a Roth is taxed now, and not taxed later on withdraw, does not mean that they will not tax you when you withdraw in the future. Yes, they probably wouldn't tax that money as income, but just may tax you on the capital gains. I understand that taxing the income now, and then taxing you an income tax on withdraw is double taxation, but it doesn't mean they won't charge you capital gains. Again, the future is not known.

By investing all your money into either or, you will either come out ahead, or come out behind. I find that splitting the two will not give me the best reward, but I also won't come out behind. Diversified is rule number 1 in investing.

 

[Jackburton]

Some of y'all forget if you can max out a Roth over traditional, you're effectively saving more money. Some of you also forget we'll be pulling a pension as well. I plan on making my money last but I'm also going to enjoy the crop with the seeds I've planted. I firmly believe that whatever happens in the future, having the government out of my finances later can only be a good thing.

 

[purplesky]

U just made my point for a Roth. U only know the present so just pay the taxes now.

The big advantage to a Roth for me comes in knowing all that money is mine. I don't have to plan around taxes. I know this could change but if it goes I believe all retirement tax advantages will be taken away so it won't matter.

Also we should all strive to be in a higher tax bracket come retirement. Between my wife and I I fully expect to retire with somewhere in the neighborhood of 6 million in investments. That won't include any business income or rental property income.

Brownslave you have great retirement goals and you seem focused enough for a young guy to acheive them. I used to think when I was younger and I started the UPS 401k that I would be able to save maybe 2 million for retirement. This was back in the high flying 90s and the tech .com bubble was happening. EVERYBODY WAS GOING TO RETIRE IN THEIR 50s! blah blah blah

I am an agressive saver and investor and there is no way I will have enough in my 401k retirement to generate 95k of annual income for 30 years in retirement so for me the traditional 401k just makes more sense tax wise.

My retirement income should put food on the table and keep the lights on and allow me to play some.

I actually have a roth with fidelity and I buy individual stocks but I dont have that much money to put in it.

Its a win win either way. You are on a path to a great retirement for sure.