The third of five installments excerpted from Christine Benz’s comprehensive Jan. 3 Improving Your Finances article on focuses on . . . :

Increased Availability of Conversions from Traditional 401(k)s to Roth 401(k)s

What’s Happening: In an effort to raise revenues, the fiscal cliff deal allows employees with traditional 401(k) balances to convert them to Roth 401(k)s, provided their 401(k) plan allows for such a conversion and includes a Roth 401(k) feature. Whereas the Small Business Jobs and Credit Act of 2010 enabled a limited subset of individuals–those who have left or retired from their former employers, are age 59 1/2, or are disabled or dead–to convert their 401(k) balances from

traditional to Roth, the new laws enable people of all ages to do so. Partial conversions will also be available. Individuals will be able to convert assets in plans established prior to 2013.

 “What You Should DoBecause in-plan conversions allow workers to pay taxes on their balances at today’s tax rates in exchange for tax-free withdrawals during retirement, such a maneuver will make the most sense for those who have reason to believe their tax rates will be higher in the future. Therefore, key candidates for in-plan conversions will be the wealthy and younger workers whose careers are on an upward trajectory. The key consideration, however, is whether you have the cash on hand–apart from the assets in the 401(k)–to pay the taxes due upon the conversion.”

Up next: Long-Term Care Provision of Health-Care Reform