I will be losing my job in the next few months and am not sure whether to leave the money in my workplace retirement account or roll it into a Roth IRA. If I decide on a rollover, how do I go about it? --M.F., Charlotte, N.C.
Rolling your money from a 401(k) to a Roth can be a good idea. Unlike a 401(k), a Roth lets you tap your contributions tax- and penalty-free at any time, and you can withdraw the earnings tax-free when you turn 59½. Plus, there are no required minimum distributions after you reach age 70½.
The downside to this strategy is that you’ll owe taxes on money you convert from a 401(k) to a Roth for the year you make the conversion, and converting the entire 401(k) to a Roth in one year might bump you into a higher tax bracket. Because money may be tight while you look for a new job, consider rolling your 401(k) into a traditional IRA and gradually converting money from that account into a Roth.
You can open an IRA account with a brokerage firm, mutual fund company or bank. Look for an administrator that has low fees and good investment choices. TD Ameritrade, for example, has no minimums or annual fees and lets you invest in stocks, bonds, mutual funds or anything else available to brokerage customers.
There’s no income limit for converting money from a traditional IRA to a Roth, but there are income and contribution limits for new contributions.
Delayed disaster claim
My home was damaged by Hurricane Sandy in October, but I’m still waiting for my claim to be paid. I haven’t even seen an adjuster. Any advice? --Name withheld
It can take weeks to get an appointment with an insurance adjuster after a major disaster. If you need to make basic repairs in the meantime, take pictures of the damages first, and keep receipts for any repair-related expenses. Be at the house when the insurance adjuster does come, and ask your contractor to be there, too, so you can both point out the damage. And update your insurer if your contractor finds new problems after starting work.
If your claim is still delayed or is denied, find out from the insurer the procedure for moving it along or contesting the denial. You can also get help from your state insurance department. Many states set up fast-track appeals processes after a major disaster. See www.naic.org for contacts.
If some damages aren’t covered by your insurance (flood damage is typically not covered by homeowners policies) and you live in a federal disaster area, you may qualify for a Federal Emergency Management Agency grant, a Small Business Administration disaster loan (even if you don’t own a business) or tax breaks for uninsured-casualty losses. Find out about these benefits at DisasterAssistance.gov or a FEMA disaster recovery center.
I had to pay the Medicare Part B and Part D high-income surcharge because of my income while I was working, but I retired this year and my income dropped. Do I have to keep paying the surcharge? --V.J., Plano, Tex.
No. The government uses 2011 income to determine who is subject to the surcharge in 2013, because that is the latest tax return it has on file. If your income has dropped since 2011 because of a life-changing event, including retirement, divorce or the death of a spouse, you can get the surcharge reduced or removed. See Medicare Premiums: Rules for Higher-Income Beneficiaries for a list of eligible events and for how to contest the surcharge.
Single filers whose adjusted gross income (plus tax-exempt interest income) was greater than $85,000 and married couples filing jointly whose income topped $170,000 are subject to the surcharge for Medicare Part B and Part D premiums.
This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.