Are you thinking about converting your 401k to a Roth 401k?

A new provision in the tax code makes it easier to convert a regular pre-tax 401k to a Roth 401k.  But before you rush to do this, there are several things you should consider first.

a) Look at the basics.  Are you saving enough?  If you have a solid pension, your goal might be to save 10% of pre-tax income.  If you don’t have a pension, you might need to save 15% of pre-tax income or more.

b) Has your Net Worth (NW) grown to all-time highs?  If you include dividends, the S&P 500 reached an all-time high in March of 2012.  Your portfolio should already be at all-time highs.

c) Do you have a goal for what you need to retire?  The answer is not a “gazillion” but it may be more than you   think.  Healthcare will be more expensive and social security may be less than you think.  How much will you   spend in retirement?  It could be 80% to 120% of current spending levels.  Will your house be paid off?  Target a retirement savings goal of 25 to 33 times your yearly retirement spending.  For example: you spend $50k per year in retirement (above pension and social security income), you may need $1,250,000 to $1,650,000 in retirement savings.

d) What can you do to save more for retirement?  Can you max out your 401k or Roth 401k?

e) Do you have an optimal asset allocation or are you missing asset classes?  Active management doesn’t work.  See my previous blog.  Work with a fee-only fiduciary Advisor.  Get a 2nd opinion about your financial strategy.

f) Here is the link to a great article from Morningstar about converting a 401k to a Roth 401k.  In general, it may be a bad idea to convert the money from a traditional plan to a Roth unless you can pay the taxes from cash outside of your 401k plan.  You can also look at having new contributions go into a Roth plan.

– Question 1: Does your plan allow it?  

– Question 2: Do you expect to be in a higher tax bracket in retirement than you are today?

– Question 3: Do you have the money to pay the taxes?

– Question 4: How tax-diversified are you?

– Question 5: Have you exhausted simpler options?

– Question 6: Have you considered the timing?

– Question 7: Do you trust the Government not to change the rules?

Integrity Investment Advisors, LLC is a fee-only Registered Investment Advisory Firm.  We are headquartered in Colorado and serve clients on a national basis.  2013 Press Release: Integrity Investment Advisors, LLC and Managing Partner Todd Moerman are pleased to have recently joined an exclusive group of wealth managers offering the low cost mutual funds of Dimensional Fund Advisors (DFA) to its clients.

At Integrity Investment Advisors, We Believe Investors Should…

1) Have a fee-only fiduciary advisor working for you. Most Wall Street firms, banks, and insurance companies do not have this legal obligation.

2) Use low-cost passive investments. Costs & fees make a HUGE difference.  Our fees are .6% on the first $1M of assets under management and decline to .25% on assets over $1M

3) Focus on asset class investing. Diversify!

4) Focus on the Academic Approach to investing.

5) Trust but verify your current financial advisor

You owe it to yourself to get a 2nd opinion about your financial strategy, please call Todd Moerman 303-549-4720

www.IntegrityIA.com

Twitter @toddmoerman