401(k)-to-Roth rollovers: It’s one fell swoop and done — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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401(k)-to-Roth rollovers: It’s one fell swoop and done

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in Small Business Tax

It used to take two steps to roll over funds from a 401(k) plan account to a Roth IRA. First, the plan participant had to roll over the funds to a traditional I RA. Second, he or she had to convert the traditional IRA into a Roth and pay the tax bill. But not anymore.

Strategy: Take one giant leap forward: Under the Pension Protection Act of 2006 (PPA), you can pull off a 401(k)-to-Roth rollover in one fell swoop. The tax-law change applies to distributions made after Dec. 31, 2007. The IRS has issued new guidance on one-step rollovers in a question-and answer format. (IRS Notice 2008-30)

Background information: The 401(k) is the most popular company retirement plan. The participant’s personal account, which may consist of both employee and employer pre-tax contributions, grows without any current tax. The plan also may allow after-tax contributions. However, distributions are taxed at ordinary income rates reaching as high a...(register to read more)

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