While the rest of us were busy wishing a not-so-fond farewell to the strange year that was 2012, our friends in Washington were burning the midnight oil to hammer together a last-minute workaround to the fiscal cliff fiasco.
And hidden in that documentation — along with the regular mix of year-end riders attached to such a Hail Mary-styled piece of legislation, including tax breaks for NASCAR and the alternative fuel industry — were a couple of tangible impacts to the retirement world, though one may offer just short-term benefits.
First up, it looks as though folks hoping to roll over their regular 401(k)s to Roth 401(k)s may get an opportunity for a long-term tax break — lord knows you're going to need one, as your taxes really are going to go up.
A new provision in the package will allow 401(k), 403(b) and 457(b) participants to make the leap to a Roth 401(k) without waiting for the traditional qualifying events (retirement, reaching age 59 1/2 or changing jobs).
Why? Because doing so immediately sends that tax deferral — which you'll have to pay up front — to Washington, rather than waiting until your far-off retirement day, and Washington wants your taxes.
The Congressional Budget Office and the Joint Committee on Taxation claim this might provide $12 billion in "found money" over the next 10 years, and those leaders are excited to get anything they can to add to the books right now.
It's also a huge opportunity for regular folks to make that Roth conversion – provided they have the financial wherewithal to pay those taxes much sooner than later.
That's a nice gesture if you'd like the money to go to your kids and not have them pay future taxes; if you can do the math (and hopefully participants will be interested in getting your professional advice in doing so), the long-term benefits could be good for even austere investors.
