While working in Florida in leu of paying Social Security as a state employee, paid into FICA alternative plan. That plan needs to be rolled into another retirement account now. The two options available are Traditional and ROTH IRA’s. Which one would have the better tax advantages.
Thank you,
CJAJAZ
So a The FICA Alternative Plan is a defined contribution retirement plan authorized under Section 401(a) of the Internal Revenue Code. It allows certain employees in temporary positions to participate, providing an alternative to earning Social Security credits.
This is a pre-tax plan, so if you roll this over into a Traditional IRA there will be no taxable event until you distribute the money later. If you roll this over and then convert into a Roth IRA, this will be a taxable event, though when you distribute the money from the Roth IRA you will not pay income taxes. Both of these scenarios are assuming that the distribution takes place on or after age 59.5.
The question of which one is better is a more complicated question. It depends upon your age, what your current marginal tax bracket is, what you think it may be when you retire, etc. Also can you pay the taxes if you convert to a Roth is an important consideration. The most important thing it to roll it over or convert it. Do not just take the money out. This will be a taxable event and you will most likely get a 10% penalty.
Best of luck and thank you for the question @CJAJAZ
All the best,
Marc
Employee Tax Expert
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