By now I’m sure you’ve heard that Congress voted to enact legislation that would avert the tax part of the fiscal cliff, postponing the spending portion for two months.
The stock market showed its relief by being up over 2.5% on this first trading day of the year. Remember, the stock market loves certainty. Now that we know what the tax rates are going to be, we know what we are dealing with.
It’s not unusual for the market to be up on the 1st day of the year but I’m still encouraged that we may see even more growth as the economy continues to show signs of improvement.
A brilliant colleague of mine has written a detailed blog post on the results of the new legislation. I’m posting a link here if you would like to read all the details for yourself.
And if you have any questions on any of this, please let me know. Here’s the link:
There is one new provision in this legislation that is going to allow for 401ks and 403bs to allow distributions in-service (while you are still working) to a Roth IRA if your employer offers Roth IRAs. It’s too early to see how this is going to work exactly, so I encourage you to contact me if you are considering this at some point. We would need to evaluate if this makes sense for you. Also, my guess is that most employers do not currently offer Roth IRAs as part of their 401k or 403b plans but this may be something that is added in the future. Depending on a lot of variables, this may or may not be something to take advantage of.
We do know that if you wanted to move money from your 401k or 403b to a Roth IRA you would have to pay the full amount of taxes due on that distribution in the tax year you moved the money. This is why the government added this provision to the legislation. It could mean some up front revenue coming in to them.
The advantage to you is that the money in the Roth IRA would not be taxed when you took it out, at least the way the rules work now. There is no guarantee that these rules could not change in the future.
If you have any questions or need anything, please let me know.
In the mean time, let’s hope the markets continue to rise.