2 More Questions to Ask Yourself About a 401(k) Plan


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In yesterday’s blog entry we looked at the first three basic questions to ask before investing in a pre-tax 401(k) plan. Now, let’s look at the two advanced questions you should consider before making that kind of investment.

Do You Plan to Roll Your Nest Egg?

Would a 401(k) contribution get you out of AMT this year?

AMT (Alternative Minimum Tax) looks to be a serious issue for many Americans this year. I’ll be blogging about any updates on this on TaxLoopholes, so make a note to check often.

The problem with AMT is that it can be triggered by so many things: income over $100,000, long-term capital gains sales, and high state income tax are all things that can trigger the alternative tax. The problem is that many of the deductions you’re used to taking to reduce your taxes, simply don’t work with AMT. One strategy that does work this year if you own your own business (and otherwise qualify) is to put a Solo 401(k) plan in place. It can take you out of AMT harm’s way and create a perfect set-up for (5) below.

Will you roll in 2010?

There is a fantastic loophole for the rich occurring in 2010. In 2010, you’ll be able to roll all of your pension plans into Roth accounts, without limitations. Remember a Roth account allows you to grow your investments without paying tax, ever. If you’ve got a proven track record with investments and know you’re going to make money, wouldn’t you rather make that money in a Roth account? Currently, if you make too much money, you can’t do the roll over. That’s what has kept so many people out of these great wealth-building vehicles.

In 2010, for one year only, anyone can roll. There is no limit on how much you can move over either. You’ll have to pay tax on the amount that is rolled, but the government is even going to give you two years to pay it! It’s a great deal, for the right person, and the best way to optimize it is to put as much as possible away in 2007, 2008 and 2009.



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