Retirement Accounts

The president said the main sticking point was how to avoid the automatic federal spending cuts set to begin tomorrow. Those “may not always be the smartest cuts” and would affect defense as well as government services such as the Head Start education program, he said.

Half of the $24 billion cost of delaying the cuts would be covered by allowing 401(k) retirement account holders to convert some of their balances into Roth-style individual retirement accounts that can be tapped tax-free in retirement, said a Senate aide familiar with the talks.

The change would raise revenue because people who do such conversions pay income taxes up front. The conversions aren’t currently allowed in 401(k) plans, the aide said.

Representative Mike Rogers, a Michigan Republican, said House Speaker John Boehner has been “hands off” in the Senate negotiations. He said if a deal includes averting automatic cuts, it would need to include spending reductions in exchange for those.