Optimism & Roth retirement planning


Written by: Jon McGraw

They say that optimism is contagious. The performance of markets across the globe last week certainly supported the idea.

During the second week of January, there was reason for optimism about the housing market as data showed that housing starts exceeded economists’ expectations and home construction appeared to be on the rebound. Last week, the National Association of Realtors disclosed that very low mortgage rates, falling unemployment, and one of the most affordable housing markets on record helped make 2012 the best year for home sales since 2007.

In addition, earnings season – the period of each quarter during which public corporations announce their quarterly earnings to the public – moved into high gear. Generally solid corporate earnings drive markets higher. This helped the Standard & Poor’s 500 Index close above 1,500 for the first time in more than five years.

Across the pond, the European Central Bank announced that banks plan to repay 137 billion Euros next week much earlier than many had expected. Markets interpreted the news as a sign that European financial systems may be on the mend. Global stock markets gained strength and the Euro reached its highest level in nearly a year against the U.S. dollar. Interest rates in Italy and Spain, some of the weaker links in the Eurozone economy in recent years, fell significantly during the week offering further evidence that investors’ optimism and appetite for risk was on the rise.


Data as of 1/25/13







Standard & Poor’s 500 (Domestic Stocks)







10-year Treasury Note (Yield Only)







Gold (per ounce)







DJ-UBS Commodity Index







DJ Equity All REIT TR Index








Traditional or roth retirement plan contributions?

A provision of the American Taxpayer Relief Act of 2012 (ATRA) allows many people with savings in workplace retirement plans to make “in-plan Roth conversions.” They can move savings from traditional, before-tax 401(k), 403(b), or 457 plan accounts to Roth plan accounts without a distributable event (such as death, disability, or reaching age 59½) as long as the employer offers both options.

Traditional contributions: In general, traditional contributions to retirement plan accounts are made with before-tax dollars so they reduce current income. Any earnings in these accounts grow tax-deferred until assets are withdrawn. Generally, that’s at retirement. Distributions from Traditional accounts generally are taxed as ordinary income.

Roth contributions: Contributions to Roth retirement plan accounts are different. They are made with after-tax dollars so they do not reduce taxable income today. Any earnings in Roth accounts grow tax-free. Distributions from a Roth account are tax-free and penalty-free as long as the five-year participation period requirement is met and the distribution is taken for a qualified purpose, such as reaching age 59½ or becoming disabled.

 How do I decide whether a conversion is right for me?

The decision about whether to convert a Traditional workplace retirement plan account to a Roth workplace retirement plan account should be based on criteria that are similar to the criteria used when deciding whether to convert a Traditional IRA to a Roth IRA. These include:

  • Tax brackets now and in the future: If you think you’ll be in a higher tax bracket during retirement than you’re in today, then a Roth conversion may make sense.
  • Assets available to pay the taxes due: When you convert from a Traditional to a Roth plan account, you will owe taxes on the assets you convert. If you have non-retirement savings available to pay these taxes, a Roth conversion may be a good choice.
  • Legacy and estate planning goals: If a Roth 401(k) account offers estate planning opportunities that suit your needs, conversion may be a good choice.
  • Income needs during retirement: If having a source of tax-free income to supplement taxable income during retirement could boost retirement income, then a Roth conversion may make sense.

Source: Investment News

It’s important to recognize a retirement plan conversion is different from an IRA conversion. Plan conversions do not allow a do-over while IRA conversions can be revoked for a certain period of time. If you have any questions about this topic, please give us a call or visit our Resource library

Weekly Fun – Think About It

Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.  Helen Keller, the first deaf and blind person to earn a Bachelor of Arts degree

 MLB Baseball Jerseys