The IMQ Expands Who Can Convert A 401(k) into a Roth IRA

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  • Post last modified:September 1, 2023

Many people have warned that income tax hikes may be on the horizon in the years to come. Have you thought of how these tax increases will affect your clients’ pre-tax money held in a traditional 401(k)? Converting that 401(k) or a portion of that 401(k) into a Roth IRA may have crossed your mind as a solution. Though converting a traditional IRA to a Roth IRA is an attractive option to mitigate any future tax hikes, this option is not available to people who are still employed and have all their money trapped in a company sponsored 401(k) or people who do not have the capital to cover the tax burden on the funds conversion.

The In Marriage QDRO® solves both issues and grants the access to the retirement funds your clients seek. If married, one can use the In Marriage QDRO® (IMQ) to gain access to all the funds in one spouse’s 401(k) that can then be liquidated or rolled over into a traditional IRA, then converted to a Roth IRA. This can be done if your client:

• Is still employed and contributing to the 401(k).

• Makes over $200,000 and is not eligible to contribute to a Roth IRA.

• Always wanted to have a Roth IRA, but cannot afford the tax burden of a conversion. This is done by taking advantage of the 10% penalty being waived for those under 59 ½.

If any of your clients are on track to have higher income in a few years, OR if they have substantial income tax deductions now, OR if they are worried about future tax increases, you may need to consider taking the tax hit now and convert funds to a post-tax Roth account. If you only thought this option was available at the time of your client’s retirement, then you need to investigate whether the IMQ strategy may be a good fit for your client. Think of that 42-year old client converting a $400,000 401(k) to a $400,000 IRA and letting the next 18 years of growth be tax free. That is the unique power of the In Marriage QDRO®.

Check out the rest of our website to learn more about the IMQ and other applications that can be utilized for the benefit of your clients and your practice.