IRA Rules

Posts Tagged ‘403b’

Question: How do I calculate the 59-1/2 age rule for IRA‘s, 403B, etc.? Is it exactly 6 months after my 59nth birthday?

I will be 59 on August 26, therefore is my 59-1/2 birthday exactly on February 26th?

Answer: You’ve got it! Feb 26, 2009.

Part 4: Ten Most Frequently Asked IRA 401k 403b Questions

Question: 401k rollover to Roth IRA for married couple both age 60, Does it make financial sense?

With the new rule in effect as of March 2008 allowing a direct 401k rollover to Roth IRA, could you shed some light on this scenario: A couple, both over 60 files jointly and will be earning less income when retired. Currently both are working and earn 100,000. When retired their income will be 46,000. They have 300,000 combined in their 401k and would like to know if it makes financial sense to rollover to a Roth IRA. Thank you for your help.

Answer: The short answer is – it depends on the tax rate. Let’s take 3 scenarios: Tax rates stay the same, your taxes are lower in retirement and finally your taxes are higher in retirement.

Assumptions:
1) You pay for the conversion out-of-pocket (as opposed to funding it with monies in the 401(k)).
2) If you do not convert, you invest what you would have paid in conversion costs in a taxable account.

Currently, your marginal tax rate is 28% and in retirement it will be 25%. Paying 28% now, when you can pay 25% later makes a ROTH less attractive. If the government decides to raise taxes, when you retire, a ROTH makes more sense.

Now, there are other subtle differences between the types of accounts, like required minimum distribtions, that effect estate planning. This example does not consider this.

You can make a case either way if the government will raise or lower taxes in the future. Since we do not know with certainty, I suggest another option. Rollover 1/2 of your account. Keep some in a pre-tax account (401k) and some in a post tax account (ROTH).

This is a different kind of diversification – tax diversification. See the source that I listed from vanguard.

IRA, 401k rollover, Financial Planning Atlanta Questions

Question: What to do if you forget to take the minimum required distribution from an inherited IRA for 2009?

I heard that this was not required last year but others have said it is required for an inherited IRA. Should I do it now for 2010 and say it’s for 2009? Help!

Answer: RMDs were not required for tax year 2009 – Including Inherited IRAs – you’re o.k.

However note that in any calendar year an RMD may be required it must be distributed (withdrawn) in that calendar year.

NFB Estate Planning Video