401(k) to Roth conversions
A law enacted last year permits employees to transfer their 401(k) funds directly to the company's Roth 401(k) plan, even if they are too young to take a distribution from the plan. The IRS has now issued guidelines to make this easier. The new rules clarify that the amounts eligible to be rolled over include employee salary deferrals, employer matching and nonelective pay-ins. All these converted funds and any later earnings in the Roth remain subject to the plan's distribution rules. Of course, the plans must be amended to conform to the new guidelines.
The employee making such a rollover is responsible for the tax consequences and may need to increase withholding or make estimated tax payments to avoid an underpayment penalty. The five-taxable-year period of participation that makes the Roth funds tax-free begins on the first day of the first taxable year the employee makes the in-plan Roth rollover.
For nearly 30 years, Mike Nickerson has owned and managed a small, full-service accounting practice in the Midcoast. He holds a bachelor's degree in accounting from University of Southern Main and a master's degree in financial planning from Bentley University.
He is a past board member and president of the Maine Society of Certified Public Accountants and currently serves on the Maine Board of Accountancy.
An aged rock musician, Nickerson now finds musical enjoyment playing upright and electric bass in a variety of bands spanning folk to jazz music genres. He and his wife have three grown children, and they enjoy their free time hiking, kayaking, golfing, bicycling and motorcycling.
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