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Making the New IRS Ruling Work for You

Published on December 9, 2014

If you have maxed out your 401 (k), have no fear, now there is a new way to make after-tax deposits or rollovers to a Roth IRA.

A recent IRS ruling allows eligible workers to easily move after-tax contributions from their 401(k) or 403(b) plan to Roth IRAs when they exit their company plan. This new ruling offers those saving for retirement a boost to their ability to transfer funds or roll over to a Roth IRA.

For example, if you have $100,000 in a 401(k) — $75,000 is pretax and $25,000 is after tax—and you take a distribution of these monies, you can take the $25,000 and convert it to a Roth IRA tax free. The $75,000 can be placed in a traditional IRA as a tax-free rollover. (It will eventually be taxed when it comes out.)

Roth Benefits Retirees

As you may know, Roth IRAs offer a great income stream for retirees because contributions are made with after-tax dollars, which enables retirees to withdraw money tax free. With no mandatory distribution requirements (like traditional IRAs), Roth IRAs can continue to grow tax-free even after you turn 70 ½. Also, if you do need to make a withdrawal for a big expense, such as medical bills, that financial move won’t move you into a higher tax bracket.

This makes the IRS ruling particularly good news for those in a high income bracket because it allows these high-income individuals to divert 401(k) assets into a Roth IRA.

Annual limits 2014 2015
The annual limit on pre-tax contributions to 401(k) plans for those over 50 $17,500 and $23,000 (for those 50+) $18,000 and $24,000
Including your pre-tax and post-tax contributions, and pre-tax employer matches, the total amount a worker can save in 401(k) and 403(b) plans $52,000 and $57,500 (for those 50+) $53,000 and $59,000

Roth IRAs are good for people who want to leave money to heirs. It’s the best asset to leave to your loved ones for a number of reasons: inherited Roth IRAs are free of tax and they don’t have a taxable minimum distribution requirement, which means your heirs can let the monies grow tax-free for years. Some rules or exceptions apply so see your tax advisor.

What else do you need to know
to take advantage of the new IRS rule?

At Next Generation, our professionals are available to answer questions about self-directed retirement plans or rollovers, and our transaction specialists ensure you are investing within IRS guidelines. Since we do not give investment advice, we strongly recommend you consult your trusted financial advisors about your investments and any tax implications they have for your unique situation.

Contact us at (888) 857-8058 or Info@NextGenerationTrust.com, or read through
our Starter Kits for more information.

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