Tax Deductions in Retirement Savings

In a typical qualified retirement plan, a tax deduction is allowed for contributions made to the plan, and future distributions are taxable. For a Roth IRA, no deduction is allowed for contributions, but distributions of original contributions and income can be tax free.

 

Last year, a qualified retirement plan could allow participants to contribute to a Roth account. Plans also could allow participants to convert pre-tax accounts to Roth accounts, but only for amounts participants had a right to withdraw, usually because they were at least 59½.

Starting in 2013, any amount in a non-Roth account can be rolled over to a Roth account in the same employer plan, whether or not the participant is 59½. The conversion is subject to regular income tax but not an early distribution penalty.

 


Robert A. Lenberg II, CPA, CMA

The technical information in this newsletter is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.