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Rob Schultz, CFP®, PFP

Kaiser Permanente ROTH 401k

For those Kaiser physicians employed by SCPMG in Southern California, you have an election to make regarding your 401(k) which is also referred to as the TSR plan. You might have received some information from human resources on the mechanics and the bullet points below reflects my views on the practical application of a Roth 401(k) within the Kaiser system.

Ø  At the partner level there are three plans. The 401(k) plan and the Keogh plan which are funded by the physicians and the Common plan(pension) which is funded by SCPMG. Currently, the benefits of all these plans when paid out in retirement are taxable income. You can see the problem this might create. Retirees expect to be in a lower tax bracket but when you factor in the pension and distributions from the 401(k) and Keogh, both of which have required minimum distributions annually starting at age 70 ½, taxes can still be high.

Ø  By taking one of these plans and converting it to a pretax account, you will give yourself a hedge against future tax rates and a pool of money in which to draw tax-free income. If the people in Washington DC decide to increase taxes, you would take more out of the tax-free Roth 401(k). Should tax rates get cut, this would be the time to withdraw more from the Keogh plan.

Ø  We see retirees dismayed at the amount of taxable income they need to generate to sustain their after-tax expenses. This is especially important in those years after a home is paid off and the mortgage deduction is gone.

Ø  The Roth 401(k) plans do not have an income limit like Roth IRAs do. The contribution limits are the same as a traditional 401(k) plan.

Ø  Loans are available from both types of 401(k) plans.

Ø  The ideal candidate for contributing to a Roth 401(k) is the young partner who has many years to let their account balances grow. With more time to retirement, there's a better chance to accumulate more tax-free gains within the account.

Ø  Once physicians enter their 50s, a more case-by-case analysis should be done to determine which sources of retirement income can be drawn upon most tax advantageously.

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Securities and investment advisory services offered through Royal Alliance Associates, Inc., member FINRA/SIPC and a registered investment advisor. Additional investment advisory services offered through NWF Advisory Services Inc., a registered investment advisor not affiliated with Royal Alliance Associates, Inc. Certain insurance products offered through New World Financial & Insurance Services, Inc., an entity not affiliated with Royal Alliance Associates, Inc. or registered as a broker/dealer or investment advisor.

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