It’s getting easier to put your retirement funds into a Roth IRA, no matter your income or age. Lawmakers are crafting a new rule that would allow a 401(k) investor aged 59 1/2 or older to convert their standard 401(k) to a Roth 401(k), provided their employer offers a Roth 401(k).

This comes nearly ten months after the government slackened the rules to allow anyone — of any age or income level — to convert their standard retirement funds into a Roth IRA. The most recent proposal for older investors is part of the Small Business Jobs and Credit Act, which passed in the Senate and is expected to make it through the House of Representatives this week.

Adding Convenience, Skipping a Step

The new Roth IRA rule would make things easier for retirement investors by allowing them to skip a step in the process of starting or converting to a Roth IRA.

Investors with a 401(k) now are required to withdraw the money from their 401(k) plan and convert it to a Roth vehicle. This can be difficult, given the restrictions on rolling over 401(k) money. Often you are required to leave your job before accessing or moving funds in a traditional 401(k). The new rule would stipulate that you would need to no longer work at the company to convert your contributions, but you would be able to move your employer’s contributions without much extra effort. About 30% of businesses maintain Roth 401(k) accounts, according to The New York Times.

Why Convert to a Roth IRA?

Roth IRAs are popular among those looking to save for retirement because they offer a few perks that don’t come with similar savings products.

  • Pay taxes now, not later — When you funnel money into a Roth IRA, you pay taxes on the funds up front instead of when you withdraw the money. If you think taxes are going to rise or you will enter a higher tax bracket between the beginning of your saving period and your withdrawal date, a Roth IRA could help you keep your tax hit to a minimum when you take out your money.
  • Penalty-free withdrawals — You can take money out of your Roth IRA at any time without incurring a penalty. If you set aside a large chunk of money for retirement but face unexpected expenses before retirement age, this could end up being a helpful feature. Some other retirement investment vehicles penalize you for early withdrawals.
  • Easy to open — Roth IRAs can be opened at most banks and some other financial institutions. You will usually pay an account opening fee of $25 or more to start the Roth IRA.
Did you enjoy this article? Yes No
Oops! What was wrong? Please let us know.

Ask a Question