retirement

Roll Over to a Roth

You'll owe taxes on money you convert from a 401(k) to a Roth for the year you make the conversion.

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.

Medicare surcharge

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.

Most Popular

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021

Recommended

You’re Being Robbed … You Just Don’t Know It
retirement

You’re Being Robbed … You Just Don’t Know It

For retirees especially, inflation risk should always be a top concern in your financial plan.
September 22, 2021
10 Ways You Could Avoid the 10% Early Retirement Penalty
retirement

10 Ways You Could Avoid the 10% Early Retirement Penalty

You’ve saved diligently in your 401(k), and you wouldn’t mind tapping into it – but you’re not age 59½ yet, so you could have to pay the IRS a 10% pen…
September 21, 2021
How Exactly Do You Stress-Test Your Financial Plan?
retirement planning

How Exactly Do You Stress-Test Your Financial Plan?

Some tasks are not good for DIYers, and stress-testing your portfolio is probably one of them. Because individuals don’t have access to the same tools…
September 18, 2021
What Is the Social Security COLA?
retirement

What Is the Social Security COLA?

This year especially, cost-of-living adjustments are late to the party, as consumers are feeling the effect of price spikes now.
September 16, 2021