Some of the tax changes from Washington take effect next January, and there are some big bonuses. For example, people who worked for local and state governments have money in deferred compensation or 457 plans. Upon retirement, these plan participants previously could not roll over their balances to IRAs. They were forced to take the money in a lump sum and pay taxes or spread the payments out over a period of years. Starting in January, these participants can roll their money over to an IRA just like people have done from 401k plans for years. They can name new beneficiaries and can stretch the IRA over generations and even convert to a Roth IRA-a tactic that cannot be done when funds are in the 457 plans.
The next advantage is the allowance to rollover the taxable portions of IRAs, regardless of their nature, to a company plan. Why would anyone want to roll their IRA into a company plan? Because company plans (which include your own "Keogh" plan) can own life insurance while IRAs cannot. For people with estate planning needs, it can be a huge tax advantage to buy life insurance with before tax dollars rather than after tax dollars. Additionally, in some states, a company plan is creditor-proof while an IRA is not. And if you have your own company plan, you have a lot more latitude on investing (e.g., you can buy real estate and no IRA custodian would permit this).
Additionally, if you have taxable and after tax money in your IRAs, you can roll the taxable portion into a company plan and withdraw the entire after tax portion tax free. You cannot do this right now as distributions from IRAs are considered pro-rate taxable and tax free in 2001.
If you have an IRA, 401k, 457 or 403(b) plan, get advice now to take advantage of a lot more flexibility and potential tax savings which will be available to you come 2002. Check off on the attached coupon.