More Estate Planning Opportunities Forecasted for Roth 401(k)s

Income Tax

A new study reveals more employers will offer Roth 401(k)s to their employees in 2013. About a third of all employers surveyed by Aon, a human resource services provider, have plans to add a Roth contribution option. Since there are no income restrictions for Roth 401(k)s, the rising trend will catch the eye of many employees.

The forecasted increase in Roth 401(k) opportunities comes at a record-breaking time. The popularity of 401(k) retirement accounts has only been growing. According to other reports by Fidelity, 401(k) accounts broke record highs in 2012 with balances exceeding more than ever before.
Top Roth 401(k) Features

  • After-tax contributions must be made, which means distributions are tax-free.
  • No required minimum withdrawals after age 70 ½.
Until the fiscal cliff deal, certain retirement accounts could only be rolled over into a Roth 401(k) when an employee was changing jobs, were over the age of 59 ½ or were retiring. The American Taxpayer Relief Act of 2012 included a provision that allows retirement account holders to rollover certain accounts into a Roth 401(k) whenever they desire. About half of the companies surveyed already offer Roth contribution plans, and research shows nearly 8 in 10 of the companies will add in-plan conversion options.
With so many more people expected to take advantage of Roth 401(k)s, it’s an important time to consider beneficiaries. Roths offer tax-free transfers to surviving spouses who may choose to rollover inherited accounts into their own retirement account. Other beneficiaries can take advantage of the federal tax exemption of $5.25M.
Retirement accounts could be subject to probate if the decedent does not have a proper estate plan and has neglected to designate a beneficiary. If the decedent failed to regularly review retirement accounts and update their beneficiaries, loved ones may be unintentionally left out of an inheritance or may incur unnecessary fees and costs. Accounts without beneficiaries and not included in a will must follow North Carolina probate guidelines, which may not divide accounts in the way the decedent would have wished. Advanced planning will allow individuals to designate beneficiaries as desired.
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