Why Convert to a Roth IRA ?
A Roth IRA serves as a way of protecting investments from some forms of taxation and ensuring that you can “stretch out” the Required Minimum Distributions associated with many retirement plans.
Roth IRAs can be ideal for any plan owner or beneficiary who anticipates taking out relatively few distributions from their retirement account - or no distributions at all. Although there is a learning curve associated with the Roth IRA versus the more commonly known 401k plan, it can be worth the effort for many investors to make the switch.
Many people do not realize that they can convert a 401k directly to a Roth IRA. In fact, this is a relatively recent development. In the first few years after it was first codified by the IRS in 2006, the rollover was considered by many to be too complex and vague for most investors to attempt. However, things have become more clear in recent years, and the option is on the rise.
Getting Started With Rollover : What Is A 401k?
A 401k is a retirement account associated with a beneficiary’s employer. Although all plans are different, the 401k category of investment plans is bound by certain restrictions that are fairly common. For example, most 401k plans are noticeably limited in terms of the types and number of funds that you may be able to access as part of your investment portfolio.
The funds in a traditional 401k account also face a number of restrictions that can make it very difficult to access the funds or to make sure that beneficiaries can inherit a reasonable portion of the investment’s value - free from burdensome taxation and other expectations.
Most importantly, beneficiaries can be punished with a heavy tax burden if they attempt to remove funds from their 401k too early. This is, perhaps, one of the biggest issues that has driven investors to look for alternative retirement investment options.
The Basis of the 401k-Roth IRA Rollover
Between 2006 and 2008, laws came into effect which allowed for the conversion of traditional 401k plans into Roth IRA plans. Some other, less common corporate retirement accounts are also eligible for such a conversion under specific circumstances.
The 2006 Pension Protection Act is the law under which the 401k to Roth IRA conversions were initially allowed. However, the process was complicated and consisted of a number of sequential steps. With the publication of IRS Notice 2008-30 in 2008, those steps have been streamlined and substantially clarified.
Nowadays, the decision to rollover a 401k into a Roth IRA can be undertaken with the help of a qualified financial planner. Although the requirements are relatively simple, an investor must think carefully about his or her financial situation before making the decision.
When Might Rollover Be A Good Investment Strategy?
Before deciding to roll over a 401k plan to a Roth IRA, it is a good idea to take complete stock of one’s financial situation and retirement outlook. A person’s investment goals, age, expected retirement date, sources of income, and other factors may come into play in this decision.
Generally speaking, the Roth IRA is considered an excellent option for anyone who feels he or she will be able to leverage the investment without taking out funds from the Roth IRA account. A Roth IRA provides an investor with options to extend the schedule of what would otherwise be mandatory distributions from the account’s value.
Because the rules of mandatory distributions may be more flexible in the case of a Roth IRA, a 401k rollover to the Roth IRA plan is often sought by those who wish to position their heirs to leverage their investment to the fullest. In many situations, it can be easier for heirs to inherit and use funds from an inherited Roth IRA than from other traditional retirement accounts.
Will Rollover to a Roth IRA Benefit Everyone?
Although a rollover from 401k or other corporate retirement account to a Roth IRA can be very beneficial in the above mentioned circumstances and others, it is not always the best investment strategy. Knowing whether or not to engage in a rollover requires a comprehensive financial analysis that pits the benefits against the risks.
There are some cases where an individual might decide to retain their 401k or other employer-linked retirement account even though the Roth IRA offers more flexibility. This is especially true when a 401k is providing excellent returns above ordinary market performance.
There may be other situations in which converting to a Roth IRA is not beneficial. For example, if the benefits associated with a Roth IRA, such as flexibility regarding inheritance options, are not necessary, then a rollover can represent time wasted for the investor.
Considering A Rollover? Time to Seek Professional Advice
When considering the rollover option for a 401k, it is a good idea to seek out the advice of licensed financial professionals like the ones employed by our company. Although there are many financial advisory firms, ours stands head and shoulders above the rest!
We provide our clients with truly unbiased, professional advice about all aspects of the 401k to Roth IRA rollover. Our financial advisors are licensed professionals who have worked hard to build a reputation you can trust - we offer the unvarnished unlike some other companies that provide or receive incentives when their clients switch to the Roth IRA.
Our company operates in all 50 states and is proud to have many satisfied clients in each. When it comes to investing, each 401k plan has its own intricacies which may make it more or less attractive than the Roth IRA. We have a wealth of experience from all around the United States, giving us unique perspective to help with your situation.
Our team of financial advisors is focused on client education. We feel that it is crucial that you are in complete control of your investing decisions and financial future. Our goal is to give you all the information that you need to feel peace of mind as you strive to reach full financial health. With our company, the client is always in the driver’s seat.
Last, but not least, when you work with us you can be sure that you will have all of the options presented to you. Deciding on a rollover is not always the best path: There might be many other retirement investment options that you could pursue instead. Although we have worked hard to establish ourselves as the rollover experts, we can help map out the alternatives that may work best for you.
Try Our Free 401k Evaluation For More Information
We want to help you make the most of your retirement investment. One of the ways that we do it is by making effective, up-to-date information available to you, whether you decide to pursue a 401k to IRA rollover with our company or not.
If you would like to speak with a licensed financial advisor about your situation and the choices open to you, all you need to do is fill out our quick and simple web form. As soon as we receive your form, we will be able to schedule an appointment for your consultation.
The free 401k evaluation comes with no obligation to you. It is a no-cost service provided to help you with your financial needs. If you decide that you would like to pursue a rollover, then our experts will be available to you to initiate that process right away - or on the schedule you choose.
No matter what path you choose, having expert advice is crucial. Get in touch with us today and you can bank on the rock solid reputation of a nationwide firm known for quality and integrity. We look forward to the opportunity to help you reap the most value possible from your hard work.