Annuity News Now--New small business law could have big effect on retirement accounts
Tuesday, October 26, 2010 at 11:39AM A new law aimed at helping stimulate small business job growth through tax deductions could have major consequences for anyone with a retirement savings account at work, a University of Illinois expert on taxation and elder law notes.
Law professor Richard L. Kaplan says an obscure provision in the recently enacted Small Business Jobs Act allows 401(k), 403(b) or 457 account holders to convert their retirement savings into a tax-advantaged Roth-version of the same account.
The good news, according to Kaplan, is that by converting to a Roth variant, income can grow completely tax-free because no tax is assessed when funds are withdrawn from a Roth account during retirement.
The bad news: Those who convert retirement savings account to Roth plans must report the amount converted as income, a move that could potentially bump them up into a higher tax bracket.
"The tax bracket you think you're in may not be the tax rate you pay when you consider the related implications," he said.
ANN host Scott Drake interviews professor Richard Kaplan
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