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Subject:  Re: New law needed for 401k Date:  10/7/2007  9:13 AM
Author:  aj485 Number:  59471 of 88775

I can roll over my 401k into Roth IRA or Traditional IRA . If I'm not wrong, I can pay one time taxes to roll the money into Roth which is based on my tax bracket . Then, The money in the Roth can grow tax free with no taxes paid at retirement withraws .

Beginning in 2008, you will be able to do this type of one step conversion to a Roth. Until 2008, there is a two step process to get from a 401(k) to a Roth IRA. You must first roll over the 401(k) to a Traditional IRA, then convert from the Traditional IRA to a Roth IRA. Also, be aware that you don't have to convert the entire amount at once - if you want to convert $50k over the course of 10 years, you could convert $5k a year.

My other options would have been to roll it into traditional IRA , this way I would not have to pay any taxes in front . Then my money would grow with all the compunding you mentioned with no taxes paid annualy either . Then at the retirement age, for withrawing, I would be paying taxes based on two factors . First, is my tax bracket , which if I'm not working should be on the low end . Second, is based on how much money I withraw . The less money I take out , the less taxes I pay because again that would keep me on the low end of the tax bracket .

With the caveat that for a traditional IRA, when you reach the age of 70 1/2, you are required to take out a minimum percentage of your account each year, and every year older you get, the minimum percentage increases. So depending on the size of your account and your age, you could be required to take out enough to bump you to the next tax bracket, even if you didn't want to take out that much.

For a Roth IRA, in addition to having no taxes paid on withdrawals, there are no minimum distributions required.

I guess we need to have a calculator to compare apple to apple investing of tax sheltered investing Vs regular investing to see which one is better ?

Currently, long term capital gains rates are lower than ordinary income rates, so as long as you aren't trading frequently in your taxable account, you will pay less tax on the same gain in a taxable account than you would for the same amount as a withdrawal from a traditional IRA or 401(k). Of course, the tax laws are all up to the whims of Congress, so this may change.

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