Securing Your Retirement with 401(k) and Roth Conversion in Retirement
As you plan your retirement, you might think about converting from a traditional IRA to a Roth IRA. Usually, Roth conversion in retirement is an excellent choice. But, in some cases, it requires you to have a better understanding of tax implications before you decide to move your traditional IRA to a Roth IRA.
At Solutions For Life, we help you make the best-informed decisions regarding your retirement planning, so you have a comfortable and financially sound retirement life. We explain why and when it is best to go for a Roth conversion in retirement, what 401 rollover options you have, and how you can lower your taxes and withdraw your earnings without paying any tax in the future. Your journey to a better retirement starts with us.
Turning Your 401k into Lifetime Income with Roth Conversion
When you leave your employer for reasons other than your retirement, you usually have four 401l rollover options. These are:
Rollover to an IRA
Choosing to roll over your 401(k) plan into an IRA, preferably a Roth IRA, offers you tax-deferred growth potential and several investment options. If you own a traditional IRA, you can later go for Roth conversion in retirement. The choice between sticking to your traditional IRA and Roth conversion comes down to paying taxes now or later.
Rollover to a new workplace plan
If your new employer allows you to roll over your old 401(k) plan into a new plan, you can enjoy tax-deferred growth. You may also have multiple investment options.
Keep your old 401k plan
You can continue to have your old 401(k) plan and enjoy tax-deferred growth. That said, you may no longer have the right to contribute to this plan for your retirement plan.
Withdraw your money from your 401(k) plan
When you cash out your money from a 401(k) plan, your cash distribution will be subject to taxes, both state and federal. You may also need to pay a 10% withdrawal penalty if you withdraw before age 59½. Also, your money may not continue to grow tax-deferred. That is why cashing out is not a favorable choice for most people in the US unless they have an emergency and require immediate funds.
401(k) rollover Options: Why to go for Roth conversion
Should you choose to convert your traditional IRA into a Roth IRA after rolling over your 401(k) into an IRA, you can enjoy these benefits:
Tax-free withdrawals in retirement
In a traditional IRA, you may have to pay some taxes on the money your investments earned. But with a Roth IRA, you will not have to pay any taxes on your withdrawals, provided you meet certain requirements.
Tax-deferred growth potential
Traditional IRAs require you to take required minimum distributions once you reach age 72, irrespective of whether you need money or not. This leads to a loss of tax-free growth on the money you withdraw. But with a Roth conversion, you don’t have restrictions on your savings. You don’t have to withdraw any money from your account if you don’t need it.
Tax-free inheritance to your heirs
The beneficiary of your Roth IRA will have to take required minimum distributions, but they won’t have to pay any taxes on withdrawals as long as the account has been active for at least 5 years.
At Solutions For Life, we will make your retirement planning decision easier and better. Get in touch with us to know more about your options.