Silber Bennett Financial
Rebecca Dawson is an experienced, independent financial advisor offering personalized wealth and investment management guidance to a select group of individuals, families, and businesses in Southern California and around the country. Her mission is to be a trusted advisor to her clients by partnering with them to identify what is most important in their financial lives while providing tailored solutions to help achieve their goals.
For over 20 years, Rebecca has served as a financial advisor. She has developed highly refined methods for evaluating client's needs and formulating successful investment strategies. She and her staff provide an exceptional level of service to her clients, who are typically worth well in excess of $1 million and include some of the most prominent people in the United States.
Before joining Silber Bennett, Rebecca managed her own independent brokerage office since 1999. Prior to that she held similar positions with PaineWebber, Merrill Lynch, and Alex.Brown & Sons.
Her clientele have included corporate presidents, and officers, charitable foundations, pension funds, business owners, and wealthy retirees. Her affiliation with Silber Bennett Financial provides her clients with full service wealth strategies.
BA, Liberal Arts, University of Texas at Austin
SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SILBER BENNETT FINANCIAL, INC.
DOI: CA 0H72697 | MEMBER: FINRA / SIPC
Rebecca Dawson ONLY
Converting your 401(k) retirement account to a Roth IRA when the value of your investments are down is a compelling tax strategy since you will only pay taxes on the current value. Although there are some restrictions:
- You must be separated from your employer to roll your 401(k) into a Roth IRA. You may not do this if you are still working for the same company and/or employer, unless you’re already older than 59.5.
- Prior to January 2008, you weren’t able to roll your 401(k) into a Roth IRA. If you wanted to do so you had to open a traditional IRA then convert the traditional IRA to a Roth IRA. It all depends on your plan administrator.
Currently, most anyone can take all of their traditional IRAs and retirement plans and convert them to a Roth IRA. The amount you convert will be taxed.
You will want to do a rollover and not a distribution, otherwise your 401(k) provider will send you a distribution check from your 401(k), then they will hold around 20% for taxes. If you prefer a direct 401(k) rollover to a Roth IRA, you will want to indicate that you want a rollover and provide all the appropriate forms. If you do receive a distribution check, you will have 60 days to redeposit the check back into an IRA or convert to a Roth IRA.
If you employer offers a Roth 401(k), the rollover will be much easier. When you are converting one Roth product to another, there is simply no need for a conversion. You would simply roll the Roth 401(k) directly into the Roth IRA with the help of your plan provider.
Also, please consider the following before making the decision:
- Do you expect to pay higher taxes in the future.
- Roth IRAs use after-tax dollars, so you will have to pay taxes upfront on any funds you rollover. With a Roth IRA, your withdrawals will be tax-free.
- You want to take withdrawals at your own discretion. Traditional IRAs force you to begin taking withdrawals at age 70.5, Roth IRAs do not have the required minimum distribution (RMD).
- Keep in mind that if you do a Roth IRA conversion from a traditional IRA you may re-characterize your conversion if you decide to undo the conversion due to your investments going down even lower or if you do not have the funds to pay the taxes that year. When converting directly from a 401(k) to a Roth IRA the re-characterization is not an option.
Rolling your 401(k) into a Roth IRA, especially while your investments are down in value, makes sense but it is still wise to consult with your CPA and Financial Advisor to make certain taking into consideration your personal financial situation.
As you are aware, one of the benefits to converting to a Roth is the avoidance of having to take the required minimum distributions (RMD) after the age of 70.5 each year. Converting a traditional IRA to a Roth gives you this flexibility after you reach retirement age. Contributions to a Roth IRA come from after-tax income, so there are fewer restrictions on how you use these assets. Unlike a traditional IRA, which has a required mandatory distribution (RMD), a Roth IRA has no required mandatory distribution (RMD), so you may continue to use your Roth IRA as an investment fund for as long as you like. With a traditional IRA, you must begin to collect distributions by the age of 70.5 through annual RMDs. The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. Again, this rule does not apply to Roth IRAs.
Keep in mind that the IRS also allows you to re-characterize your Roth IRA back to a traditional IRA which may be valuable if your investment value declines or if your financial situation changes and you do not want to pay your tax bill that year, as you can recoup the taxes paid for the conversion.
Converting while in the 15% tax bracket can be a smart money move at any age. The critical element is that you will pay income tax on the amount you convert, this allows Roth IRA holders the opportunity to eliminate future taxes on their retirement plans, thereby compounding their total return. There is no minimum dollar amount for a Roth IRA conversion, so you may choose to convert a small portion of your account every year if appropriate. Therefore, individuals on disability, students, or unemployed may be suitable for a conversion. Another case for a partial conversion done over a period of years is when someone retires early before taking Social Security.
A conversion may also be appropriate if you are well into your retirement. From an estate planning perspective, if your estate is large enough by converting to a Roth IRA, you could reduce estate taxes as well. Depending on your individual tax bracket, income tax on the converted amount may be less than the estate tax for that amount.
Your heirs will also receive Roth funds tax-free versus at their top tax bracket.
One precaution of converting is that taking on that extra income could push you into a higher tax bracket. More income could result in more taxes, or it could affect eligibility for tax deductions or credits. As always, it is best to consult with your CPA and Investment Advisor before making any decisions that pertain specifically to your individual financial situation.
Most 401(k) plans have limited choices primarily focusing on mutual funds versus if you were to rollover your 401(k) to a IRA rollover. Another factor is the 401(k) administrative fees you may be paying for the plan and also the management fees. There are better investment options in an IRA that could potentially give you better diversification. Consolidating may have the convenience of reviewing your retirement plan with one statement, but then you would have your entire retirement account under one firm, although it sounds like this is already the case. It may be prudent to meet with a couple of respectable Investment Advisors to analyze where you are and where you want to be.
Another factor you may want to consider and discuss with your Financial Advisor and CPA is if and when a Roth conversion may be appropriate for your retirement plans. Once you reach the age of 70.5, you will be required to take required minimum distributions each year.
There are also considerations depending on the age you have retired. If you have retired in a calendar year in which you turn the age of 55 or older, then distributions from your 401(k) with that employer will not be subject to the additional 10% tax that normally comes with retirement account distributions before age 59.5.
Another factor would be if your 401(k) includes employer stock. There are net unrealized appreciation rules you may be able to take advantage of if so.
In summary, if you rolled over your 401(k), you could gain access to a broader range of investment choices, giving you better diversification of choices your 401(k) would not allow that could protect you from volatility in the markets. Also, you may be able to reduce your fees.
Yes, you may rollover your 401(k) to your traditional IRA without affecting your contribution limit for 2017 Roth IRA. As long as your modified adjusted gross income is $186,000 or less in 2017 (married filing jointly), you can contribute up to the full amount in a Roth. Although, as your income increases above $186,000, your ability to contribute phases out. You may also have your financial institution or plan administrator directly transfer the payment to another plan or IRA.
- Direct rollover: You can request your plan administrator to make the payment directly to another retirement plan or to your IRA. In this case, contact your plan administrator for their forms or instructions. The plan administrator will issue your distribution in the form of a check payable to your new account. No taxes are withheld.
- Trustee to trustee transfer: In this case, when receiving a distribution from an IRA, you can instruct the financial institutional holding your IRA to transfer your IRA to another IRA or to a retirement plan. No taxes are withheld.
- 60 day rollover: If your distribution from an IRA or a retirement plan is paid directly to you, then you have 60 days to redeposit those funds into your IRA or a retirement plan. I would not advise waiting the full 60 days due to unexpected delays. You may only make one rollover from your IRA to another in any 12 month period.
A retirement plan distribution paid directly to you is subject to a mandatory withholding of 20% even if you intend to roll it later. Withholding does not apply if you roll over the amount directly to another retirement plan or IRA. Additionally, a distribution sent to you in the form of a check payable to the receiving plan or IRA is also not subject to withholding.
Usually, your plan administrator will give you instructions of your rollover options.
No, FICA taxes are payroll taxes withheld from employees paychecks and paid by employees and employers for Social Security and Medicare.
There are many different options strategies that are all taxed differently. Whether you are buying or selling puts and/or calls, covered call writing, straddles or any other sophisticated options strategy. For the basic holders of puts and calls:
- If you buy a put or a call, you may not deduct its cost. It is a capital expenditure.
- If you sell the put or the call before you exercise it, the difference between its cost and the amount you receive for it is either a long-term or short-term capital gain or loss, depending on how long you held it.
- If the option expires, its cost is either a long-term or short-term capital loss, depending on your holding period, which ends on the expiration date.
- If you exercise a call, add it's cost to the basis of the stock you bought.
- If you exercise a put, reduce your amount realized on the sale of the underlying stock by the cost of the put when figuring your gain or loss.
- Any gain or loss on the sale of the underlying stock is long term or short term depending on your holding period for the underlying stock.
As always, when making any investment decisions based on the tax consequences of your investment, it is best to consult with your CPA to make certain that all of your personal financial information is taken into account.