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American Taxpayer Relief Act Eases Fund Transfers from Traditional to Roth 401(k) Accounts

One provision of the Act permits participants in a defined contribution plan, such as a 401(k) plan, to convert or transfer funds from a traditional IRA account in the plan into a Roth account in the plan without penalty, if the plan so permits.?á The transfer would not be subject to the 10 percent penalty on early distributions, such as if the participant is under age 59??, and would not violate the prohibition on such a plan not making a distribution before certain events occur.?á Contributions to a traditional 401(k) account are tax-deferred with the participant paying ordinary income tax when the money is ultimately distributed in retirement.?á In contrast, contributions to a Roth 401(k) account are taxed upfront with the subsequent distributions in retirement made tax free.?á Such in-plan Roth transfers could be beneficial to plan participants who expect to retire in a higher tax bracket as well as… Continue Reading

January 2013
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