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Investing Specialists

Should You Convert Your Traditional 401(k) to a Roth 401(k)?

For most investors eligible to do so, rolling over to a Roth IRA will be preferable.

Some taxpayers swear by the mantra of not giving the Internal Revenue Service any money until it's absolutely necessary. So why have some investors been converting their retirement dollars from traditional to Roth, paying taxes on their money now rather than when they withdraw it during retirement?

It all started back in 2010, when investors of all income levels were allowed to convert their IRA assets from traditional to Roth. Prior to that time, only those with incomes of less than $100,000 could execute conversions. Congress threw in an additional sweetener to get the money flowing in the door, enabling those who converted their IRAs in 2010 to split the taxable income due on the converted amounts over two tax years, 2011 and 2012. As a result, some financial-services providers reported a surge of conversions in 2010's waning days, and investor interest in conversions has stayed high even though that tax-splitting provision has expired. The reason? With currently low tax rates set to expire at the end of 2012, many investors think it's a good bet that tax rates will never be so low again.