SAVING FOR RETIREMENT


Rolling Over a 401(k)

I have a 401(k) plan with a previous employer that I have kept since I left that job. I am now 67 and plan to retire at age 70. Can I roll the 401(k) directly into a Roth IRA, or would it be smarter to roll it over to a traditional IRA first? -- P.B., Ft. Myers, Fla.

SEE ALSO: Why You Need a Roth IRA

First, roll the whole 401(k) into a traditional IRA, which will give you more investment choices. Then think about what will happen to your income over the next few years as you decide when to convert some or all of the money to a Roth.

The Roth has a lot of benefits, especially if you don’t plan to tap the money for a while. Since you’re over age 59½, you can withdraw the converted amount tax- and penalty-free at any time and earnings can be withdrawn tax-free, too, once the Roth has been open for at least five years; you’ll never have to take required distributions, and your heirs can inherit the Roth tax-free.

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But you will have to pay taxes on the money when you make the conversion. If your income will drop after you retire, then waiting to convert to a Roth IRA could reduce the tax bite. Converting the full 401(k) in one year, however, could still bump you up to a higher tax bracket even if you’re no longer working.

You might want to cal­culate how much you can convert each year without triggering a higher rate, and spread the conversion over a few years, recommends Rick Rodgers, a financial planner in Lancaster, Pa. Tax rates are scheduled to go up in January, unless Congress acts. “Converting some now would ensure that at least part of the Roth conversion would be taxed at today’s lower rates,” Rodgers says.

Tax return do-over

I qualified for a tax credit in 2010 but didn’t claim it on my return that year. Is it too late to get the money? -- N.C., via e-mail

You have up to three years after the due date of your return to file an amended return using Form 1040X (from www.irs.gov). It isn’t necessary to refile your whole return -- just note the changes you’re making and include revised copies of any supplemental forms that are affected. If the change lowers your tax bill, the IRS will send you a refund.

Reducing your federal income tax could also lower your state income tax liability. File your amended federal return first, then get a copy of the transcript of your account from the IRS (confirming you amended your federal return) and file an amended return with your state, with a copy of your Form 1040X.

Cheapest cars to insure

I’m shopping for a new car and want to compare insurance premiums for the ones I’m considering. How can I look that up, and which cars are cheapest to insure? -- D.M., Philadelphia

The least expensive 2012 vehicle to insure is the four-cylinder Toyota Sienna LE minivan, according to a recent survey by Insure.com. That’s followed by the four-cylinder basic Toyota Sienna, the Jeep Patriot Sport, the Jeep Compass Sport, the GMC Sierra K1500 regular cab, the Chevrolet Silverado 1500 regular cab, the Dodge Grand Caravan SXT and the Ford Escape XLS. (For the cheapest vehicles to own in four classes, see Drive Time.)

The results are based on the average insurance rates for each model from six large insurers (Allstate, Farmers, Geico, Nationwide, Progressive and State Farm), in ten zip codes per state, for a 40-year-old man with a clean driving record. You can get the full list at Insure.com, where you can also look up the average rates in your state based on vehicle make and model for a 40-year-old man with a clean driving record.

You’ll get even more-accurate prices by giving the VINs of cars on your list to your insurance company. Premiums vary based on details specific to your situation, such as your driving record and where you live.

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