In-plan Roth Conversion (cont.)

In-plan Roth Conversion

In-plan Roth Conversion

Part I

In addition to the in-plan Roth amendment, the extended plan amendment date also applies to certain related plan amendments, including plan amendments that: (1) permit elective deferrals under the plan to be designated as Roth contributions (2) provide for the acceptance of rollover contributions by designated Roth accounts, and (3) permit in-plan Roth conversion of some or all otherwise distributable amounts.

In-plan Roth Conversion: Other Guidance under Notice 2013-74

Notice 2013-74 provides the following guidance relating to qualified retirement plans under Code §401(a):

  • Generally, the rules in Notice 2010-84 continue to apply to ALL in-plan Roth conversion, including rollovers of otherwise nondistributable amounts under ATRA 2012. However, two rules announced under Notice 2010-84, only apply to in-plan Roth rollovers of otherwise distributable amounts. First, only in-plan Roth -rollovers of otherwise distributable amounts may use the 60 day rollover rule. Second, employers only need to provide the Code §402(f) notice for in-plan Roth rollovers of otherwise distributable amounts. [This makes sense given that the 60-day rollover rule and the 402(f) notice only apply when an actual distribution is made from the plan. Since an in-plan rollover of otherwise nondistributable amounts are not eligible for actual distribution, no 60-day rollover or Code §402(f) notice should be applicable.]
  • Plan participants, if permitted under the plan, may elect to make an in-plan Roth conversion of the following contributions (and earnings): elective deferrals, matching contributions, and nonelective employer contributions (including QNECs, QMACs and safe harbor contributions).
  • Otherwise nondistributable amounts that a participant rolls ,.over continue to be subject to any distribution restriction (e.g.the attainment of age 59 ½) that applied prior to the rollover In order to simplify recordkeeping, a plan may require that a .participant can only roll over otherwise distributable amounts.
  • The employer is not required to withhold taxes when a participant

    rolls over otherwise nondistributable amounts.

  • An employer may eliminate in-plan Roth conversion options under

    a plan without violating the Code §411(d)(6) protected benefit requirements. However, elimination may cause nondiscrimination

    issues if it favors highly compensated employees.

  • An in-plan Roth rollover is treated as a distribution fordetermining eligibility for the special tax rules on net unrealized appreciation (NUA).
  • An in-plan Roth rollover is considered a “related rollover” and

    must be counted in determining a plan’s top-heavy status. Thus, amounts that are rolled over as part of an in-plan Roth rollover

    continue to count towards the plan’s top-heavy status.

  • If an in-plan Roth rollover is the first contribution made to

    an employee’s Roth account, the 5-taxable-year period of participation for a qualified distribution begins on the first day

    of the first taxable year in which the employee makes the in-plan

    Roth conversion.