In-Plan Roth Conversions: Consideration for 2013

January 04, 2013

Tucked in the American Taxpayer Relief Act of 2012 is a provision allowing plan sponsors to amend their 401(k), 403(b) or 457 Plans to permit an “in plan transfer” of defined contribution retirement accounts to a Roth contribution account within the plan. Such transfers will be subject to federal and state income tax, but will NOT violate any other qualified plan rules that otherwise prohibit “in-service” distributions. Although the intent of the provision appears to be a way to raise tax revenue, it provides plan sponsors with a very timely opportunity. Plan sponsors should evaluate the merits of implementing a Roth contribution provision and amending their plans to provide this conversion feature. There are several factors to consider including administrative process, employee communication, and anticipated interest among your employees.

Categories: Plan Consulting, Participant Outcomes
Tags: 401(k), 403(b), 457

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