A year ago, Congress lifted restrictions on Roth IRAs, allowing anyone to convert an IRA or 401(k) account. Previously, you could not convert to a Roth IRA if you made more than $100,000 per year.
Another change is that taxpayers can allow grandchildren to inherit $5 million (an increase from the previous limit of $3.5 million) before they will incur the tax on skipping generations. The exemption will drop to $1 million in 2013.
Many choose to give money to their grandchildren because they will get a greater return. In fact, a one-year old with a Roth account could get as much as $408 million over the course of his or her lifetime, assuming an 8% average annual return. If he or she inherits money from both grandparents, that amount could double.
A Roth IRA is the number one way to save money for one’s heirs because a Roth holder does not need to take distributions after the age of 70.5. Taxpayers are requires to pay income taxes on money converted from another account, however – as much as 35%. Expect to pay $1.7 million (at the 35% rate) for converting $5 million to a Roth IRA.
This opportunity may close before 2013; however, expert Ed Slott does not expect any retroactive changes to occur. You should advise clients to act quickly, as Slott says this situation might be as good as it can possibly get.
Clients who convert their 401(k) or IRA accounts to a Roth IRA can undo the conversion before October 15 of the next year if they so choose. The Roth IRA return for their grandchildren could be significant if clients act quickly.
This article will focus on 401k plan participants expressed desire for help with asset allocation strategies; but, with a twist.
The author just finished reading a white paper prepared by ING Retirement Research Institute released on 3/31/2011. The title of the report is “Shedding Light on Retirement.” 2,600 401k plan participants were surveyed by the Boston Consulting Group on behalf of ING. One commentator took the report and proclaimed that the report indicated plan participants wanted help from their employers with asset allocation strategies. In fact 89% of the respondents said this was the help they wanted.
This is why I always prefer to read source material. Yes, the plan participants did say they wanted this help. However, in looking at the report, there were notable paradoxes in the responses. Specifically, 79% said they want control over how they invest; yet, over half stated they want more guidance, a roadmap, from their employer. In addition, 76% stated they want more investment choices; however, over half said they do not know how to achieve their retirement goals.
ING’s response to this survey was to create a website to help participants with education and offer personal contact, if they wish.
I suppose that is one solution. Perhaps another solution would be for employers to include professional 401k advisors for face-to-face, employee consultations. Survey participants seemed to suggest this is what they wanted; but, will such an offering by employers expose them to the Fiduciary Liability that they were so anxious to avoid when they terminated defined benefit plans?
Perhaps the responsibility is on the employee to realize they are truly on their own to find finance professional for themselves. Asset allocation strategies are not the only thing that 401k plan participants desire. Many said they need help determining how much money they will need to take them through their retirement years and they also wanted help with an annual checkup to see if they are on track. Perhaps 401k advisors are the answer. The real question is how to deliver the service.
If you plan to go for 401K rollover to Roth IRA, the best attitude that you have to possess is the sense of urgency. You have to make a stand on whether you go for this or stick with the traditional IRA. It would be for your best if you make plans right away and not end up with late decisions that will eventually mess things up.
If you plan to Roth IRA, you have to take note that every day counts. Thus, if you drag heels and become so indecisive, you might just realize that your funds are gradually going down the rocks. If you also become so fickle minded and change your mind time to time, you will just find your funds gradually declining due to penalties. Thus, it would really not help you if you keep on changing plans and if you are too late in making your decision.
On the other hand, if you make a decision fast and stand by that decision, you will really save your funds and keep it safe for good. By the time that you finally need to withdraw it, it will be readily available and it has already grown into huge amounts. If you also know the rules when it comes to withdrawal and changing of funds, it will work out to your advantage.
This is where some people fail. They tend not to know the rules and they are not even aware of their responsibilities. Take note that it is your retirement funds that are at stake here. Thus, you have to be overprotective if possible. It will still be for your good at the end of the day.
If you really want to know the details of this concept along with ideas on debt relief, you better check out Free Financial Planning Advice.