It seems that legislation has been flying out of the Senate faster than some companies can manage to cut down all of the trees the reforms are written on these days. And that is especially true when it comes to issues concerning retirement. If you donate keep up and stay informed when it comes to these changes, you may miss out of some exceptional benefits or be in for quite a surprise down the road.
To keep you in touch on the retirement issues that affect you, here are some of the significant changes that will be put into place in 2010.
IRA Conversions for All
2010 is the first year where people that own traditional IRA’s will be able to convert to a Roth IRA. The limits in terms of income and relationship status were appealed and turned over thanks to a 2005 tax bill. On top of that, you will also be able to claim half of the income from the conversion on your 2011 tax return and the other half on your return in 2012. Better yet, you can claim all of in on your 2010 tax return; the choice is entirely yours.
Permitting Non-Spouse Rollovers
Thanks to the Pension Protection Act in 2006, non-spousal beneficiaries will now be allowed to roll over any inherited funds from a plan from an employer and into an IRA. If you end up inheriting an IRA from your spouse, you will be able to treat it as if it is your own and can choose to covert it to a Roth IRA as well. Non-spouse beneficiaries will be allowed to roll over the plan but will still not be allowed to convert it into a Roth.
Employer Plan Conversions
As of 2010, anyone that ends up receiving funds that are non-Roth from their employer will be able to roll those funds to a Roth IRA no matter what their marital status or income is. While the new deferral rule discussed earlier dos not allow employer plans to be rolled into Roth IRA’s, there are a few ways to work around that. Essentially, you can roll your employer plan into a traditional IRA first and then simply continue to convert it to a Roth afterward.
Just be sure to calculate the tax cost of such conversions before deciding on whether or not such a rollover is worthwhile for your finances.
Small Business Benefits
Finally, as of this year, small businesses are allowed to adopt what is called a DB(k) plan. This plan seamlessly incorporates a benefit plan along with a 401(k) plan, which allows for one trust to be used even though there needs to be separate accounting done for both plans.
These plans have to meet certain requirements in terms of vesting, contribution, and benefits, but the return of the plan does not come with all of the restricting rules and testing that can come with other retirement plans.
The DB(k) plan is meant to provide simplicity as it is essentially two plans rolled into one and is also cheaper to maintain. The hope is that this will give incentive to employers to start offering defined benefit plans on top of their 401(k), but the results remain to be seen.
Retirement is never easy to plan for, but in the end, the more work that you put into planning, the better off you will be. That advice can be used in terms of an area with the world of personal finance, but it alone can be the difference between traveling the world during retirement and being forced to work part-time.