On September 16th a bill was passed by the senate known as the Small Business Jobs Bill. The bill is expected to pass through the house without change and be signed into law. Somewhere within the recesses of the bill is a shiny object that will attract a lot of attention. A provision which will allow individuals with 401(k) retirement plans to have the option of converting them into a Roth IRA. This might be a good idea, take the money from your 401(k) now, pay taxes at your current tax rate, and put it into a vehicle that you will not have to pay tax on again, so you won’t have to worry about what tax bracket you’ll be in when you start to take distributions for retirement. This is a pretty obvious choice for those who believe that current tax rates are the lowest they’ll see in their lifetime. However there are a few issues to be aware of:
First your company has offer this Roth option, if they don’t you’re out of luck….actually you’re not but I’ll get to that later. Second, you will still have to take the required minimum distributions that are associated with a 401(k). In other words once you reach a certain age (currently 70 and a half) you have to start taking minimum distributions whether you want/need to or not. Third, in most cases you are not allowed to roll over the entire amount within your 401(k), it will be based upon the amount your employer elects for this conversion.
So what’s the big picture? You are taking your government sponsored 401(k) and rolling it into a government sponsored Roth IRA meaning the government will still exert some control over what you do with your money, where the government gives, it can also take away.
There might be alternatives. What if you could take the money from your current 401(k) and place it in a vehicle that is outside the government’s reach? By implementing the infinite banking concept you can take control of your retirement and not have to worry about the government telling you how much you can contribute, when you can contribute, and when you must start taking distributions. Remember, the money you withdraw from your 401(k) plan will be taxed, whether it’s going into a Roth or your banking system, but it will be taxed at 2010 rates, and once placed in your banking system, if you handle it properly, it will avoid the tax path forever and won’t be subject to government regulations.
There are alternatives, understanding them could make a significant impact on your financial future.