Saving for Retirement
Changes in Tax Laws Can Affect Retirement Plans
Since retirement plans form a key component of many estate plans, you might be interested in changes resulting from recent legislation. President Obama recently signed the Small Business Jobs Act of 2010, legislation that includes tax breaks for people saving for retirement.
Among other tax law changes, the Act creates new choices for anyone contributing to an employer-sponsored retirement plan. For example, if your 401(k), 403(b), or 457(b) plan allows you to make Roth contributions, you can roll your old deferrals (but not your employer’s contributions) into your Roth account. (The beauty of a Roth plan is that you won’t be taxed when you make withdrawals.)
Those rollovers will be taxable like Roth IRA conversions, and unless you elect otherwise, amounts rolled over in 2010 can be included in your 2011 and 2012 income. That way you can stretch the tax implications over two years, not just one, which could make converting to a Roth plan more attractive.
Also, if you run your own business and pay for your own health insurance, the Act lets you deduct premiums for yourself, your spouse, and your dependents directly on Schedule C, which cuts self-employment tax as well as regular income tax. The rule is effective for 2010 only, but it could be extended.
Eventually some assets in your retirement plan may become part of your estate. Start planning now to make sure you not only have a better retirement, but also maximize the assets you pass on to your beneficiaries.